The number of Americans filing for unemployment rose last week to a 14-month high. This coupled with weak April U.S. job numbers should have most analysts questioning the health of the labor market and, more broadly, the sustainable long-term strength of the long-suffering bull market. One industry that has been feeling the brunt of the fragile U.S. economy is the retail industry. And by the looks of things, better times are a long, long way away.
U.S. Jobless Data Hits 14-Month High
U.S. jobless data for the week ended May 7 increased 20,000 to a 14-month high of 294,000. For the week ended February 28, 2015, the number stood at 310,000. Economists were expecting initial claims to actually slip to 270,000. (Source: “Unemployment Insurance Weekly Claims,” United States Department of Labor, May 12, 2016.)
Some blame the rise in unemployment claims on striking Verizon workers in New York State. Claims were also up substantially in Pennsylvania, Michigan, Georgia, and Texas, while the largest decreases were in Kansas, Missouri, Ohio, and Tennessee.
Ever-optimistic reports noted that despite the unexpected surge in unemployment claims and the raft of negative economic news flowing in, claims have remained below 300,000. That’s an important threshold for statisticians and economists because it’s the number associated with healthy job market conditions.
You could look at it another way, though—as in the U.S. is only 4,000 people shy of an unhealthy job market, which is just 80 people per state. Now that’s not much to cheer about.
Speaking of which, the four-week moving average of claims (a better measure since it irons out weekly volatility) increased by 10,250 to 268,250 last week. That’s the highest level in almost three months. It’s further away from the magical 300,000 mark (a statistic that doesn’t matter to those actually applying for unemployment), but it’s still a number that continues to climb.
U.S. Jobs Growth Lowest in 7 Months
The rising jobless data comes after nonfarm payrolls increased by just 160,000 in April, the smallest increase in seven months. Most of the gains came from the low-paying retail and service industries. (Source: “The Employment Situation,” Bureau of Labor Statistics, April 6, 2016.)
At the same time, 61,582 people lost their jobs. That’s a 35% increase over March 2016. For the first four months of 2016, job losses have totaled more than 250,000, the highest level since early 2009.
Not surprisingly, first-quarter gross domestic product (GDP) crawled in at 0.5%. The Federal Reserve astutely pointed out that the slow pace of U.S. economic growth coupled with underwhelming consumer spending and abysmal global growth has put a damper on its outlook for the U.S. economic recovery. (Source: Federal Reserve Statement, Board of Governors of the Federal Reserve System, April 27, 2016.)
What does all this data mean? That the U.S. economy is not doing as well as the Ivy League diploma-laden analysts on Wall Street seem to think it is. It also signals that the Federal Reserve is most likely not going to raise interest rates in June—maybe not even until 2017.
U.S. Retails Getting Hammered
The economic data coming in is more than just numbers. Those numbers are people and those people have a direct impact on the U.S. economy. And what they’re saying is this: we’re in trouble.
Corporate America is feeling it, too. More broadly, almost all of the companies on the S&P 500 have reported first-quarter earnings. At the beginning of the first quarter, they were predicting growth of 0.3%. In actuality, the blended earnings decline is -7.1%. That’s the first time the S&P 500 has reported four consecutive quarters of year-over-year declines in earnings since the fourth quarter of 2008. (Source: “Earnings Insight,” FactSet, May 6, 2016.)
More specifically, retailers are getting hit by weak jobs growth and wage growth, as well as tumbling consumer confidence. Teen apparel company Aeropostale Inc filed for bankruptcy after years of losses. This comes on the heels of meltdowns by previous mall stalwarts, such as American Apparel Inc, Quicksilver, Inc., and The Sports Authority Inc.
As for those still in business, Kohl’s Corporation‘s (NYSE:KSS) share price tanked after it announced that first-quarter sales dropped almost four percent, while net income tanked 55%. Company Chairman and CEO Kevin Mansell noted, “first quarter sales were challenging.” Yes, to say the least. The company’s share price plunged more than 11% to around $34.40. (Source: “Kohl’s Reports First Quarter Financial Results,” Kohl’s Corporation, May 12, 2016.)
Kohl’s is not alone. How can it be? Macy’s, Inc.’s (NYSE:M) first-quarter earnings fell 34% to $0.37 per share and the company cut its profit forecast for 2016. Meanwhile, shares in Nordstrom, Inc. (NYSE:JWN) were down on the negative sentiment running throughout the industry. (Source: “Macy’s Reports First Quarter Results,” Macy’s, Inc., May 11, 2016.)
Gap Inc (NYSE:GPS) reported disappointing April and first-quarter sales results. It also provided a generic response to the current economic conditions, saying, “it will take steps to better position the company for improved business performance and to build for the future.” (Source: “Gap Inc Reports April and First Quarter Sales Results,” Gap Inc, April 9, 2016.)
Not all retailers are suffering, though. Some are positioned to thrive when money’s tight. Wal-Mart Stores, Inc. (NYSE:WMT), for example, is up 12% year-to-date near $66.90 per share, while Dollar Tree, Inc.’s (NASDAQ:DLTR) share price was unfazed by the stock market meltdown in January. It has been trading in a tight range since the start of the year, but is up 25% since the middle of November 2015.
Most retailers will continue to suffer until U.S. economic conditions change. And there’s nothing out there right now to suggest the U.S. economy is going to rebound anytime soon.