According to Chris Varvares, senior managing director and co-founder, Macroeconomic Advisers, "the Kronos Retail Labor Index was nearly unchanged in May at 3.5 percent and has remained between 3 percent and 4 percent for ten of the last eleven months. This range characterizes a relatively good hiring environment, with nearly 30 fresh applicants for each hire. Hiring did edge lower in May, but remained strong compared to year-ago levels. Retailers in the Kronos sample hired nearly 22 percent more workers in May 2011 than they did a year earlier."

Today's guest blog post is courtesy of Dr. Robert Yerex, Chief Economist at Kronos.  You can find more information on the Kronos Retail Labor Index and details about the most recent results here. You can listen to a podcast conversation with Robert on "the new normal" here.

The New Normal, with High Unemployment

The past year saw a general stabilization in a number of important aspects of the consumer retail market. Many of the changes wrought during and immediately after the recession are likely to be permanent, at least until the next significant change.

This figure gives us a glimpse of this emerging new normal. Retail sales, represented by the width of the line, have steadily though slowly increased since the “bottom” of the recession in mid-2009, as has industrial production of consumer goods. What has not returned are the jobs. The color scale clearly shows that the unemployment rate remains stubbornly high.

During 2010, the most important changes in the retail / consumer economy included:

Dr. Robert Yerex, Chief Economist at Kronos, was recently recognized by the National Association for Business Economics for his paper “Consumer Driven Economy at a Cross Roads”.  Robert's research leverages the Kronos Retail Labor Index, a family of metrics and indices that analyze the relationship between the demand and supply sides of the labor market within the US retail sector, and provides a distinct and early indicator of the overall state of the economy.

Robert and I spoke in December about the key findings in his paper and what they portend for the recovery of the global economy.  At its peak in the 2007/2008 time frame, consumer spending made up 70% of the US GDP.  This spending, driven in large measure by high consumer debt that was often built on home equity, has retracted significantly during the recession.

In this podcast, Robert discusses what his research reveals about the "new normal" with respect to economic growth in the US and what must be done to achieve the right balance between encouraging consumer spending without re-creating the adverse economic situation we've experienced in the recent recession.

Click here to listen to my conversation with Robert Yerex about the "new normal" consumer economy.

Visit the Kronos booth (2319) at the NRF 2011 Show in New York City next week to hear how organizations like Jamba Juice and Bob's Stores are working with Kronos to effectively manage retail workforce productivity and quality.

Kronos released the newest Retail Labor Index data today.   Following is a summary analysis from Dr. Robert Yerex, Chief Economist at Kronos.

The Kronos Retail Labor Index was up slightly for the month of July, to a level of 3.63. This means that out of 10,000 applicants, 363 are being hired. Both hirings and applications were down (seasonally adjusted) from June, with application rates continuing to show significant volatility, even after being seasonally adjusted.

Much of this is likely due to great uncertainty in the job market. Those that are unemployed often seek new work diligently for several months and then become frustrated and stop looking. Good news as to economic prospects will often bring these individuals back into the search for new positions. Meanwhile, when economic news is negative, those with jobs are less likely to seek other work. This has been reflected in the retention rate which has been positive for the last 24 months. When the retention rate is positive, it means that employees are more likely to stay on the job than they were the previous year.

Consumer spending remains well off the levels seen in mid-2008, and seems unlikely to return within the next several years. There are four important drivers for increasing consumer spending: withdrawals from savings; increases in real disposable income; realization of real capital gains on assets that are sold; and use of credit, primarily revolving consumer credit in the form of credit cards and lines of credit. Currently, the trends in all four of these are moving against increased spending: the savings rate is increasing; real disposable income has not shown a measurable increase in the past few years; asset values continue to decline; and total outstanding revolving consumer credit is at its lowest level since March 2006 and will likely continue to drop, possibly to levels not seen since the 1990s.

An additional important factor is consumer confidence, which also remains low. With all these factors dampening consumer spending and consumption, retailers are unlikely to increase hiring rates anytime soon.

Dr. Robert Yerex of the Kronos Staffing Science Team provides the following context for this month's Retail Labor Index report:

Retail employers increased the number of hires they made in June to a level that was more than 30% higher than in June of 2009. Unfortunately for those seeking a position, the number of applicants also increased dramatically driving the Index down to 3.47, an improvement over June of 2009 but well below the levels seen prior to that. There continues to be considerable evidence of a jobless recovery. Of additional concern is the percentage of those who have been out of work for 27 or more weeks, now at an historic level of more than 46%. For all those individuals counted as unemployed in the U.S. Department of Labor survey, the average number of weeks out of work has increased to 33. The lost income represented by this statistic is very significant and represents a growing suppressor of consumer spending

Trends in the four most important constraints on consumer spending are moving against increased consumption: the savings rate is increasing; real disposable income has not shown a significant increase in the past few years; asset values continue to decline; and total outstanding revolving consumer credit is at its lowest level since March 2006 and will likely drop further as consumers continue to try to lower their debt. With all these factors dampening consumer spending, retailers are unlikely to increase hiring rates any time soon.

Here is the June release of the Kronos Retail Labor Index, submitted by Kelly Northrop of Kronos.  This data reflects similar trends seen in the May employment data released on Friday that indicates very modest gains in job creation beyond the temporary US census jobs.

The June release of the Kronos Retail Labor Index reveals that in May 2010, both applications and hirings decreased over April 2010.  Hirings decreased slightly more, bringing the Index down to 3.80% in May, from 4.10% in April.  This seasonally adjusted Index level means that for every 100 applications received, 3.8 hirings occurred.

Hirings in general are still up from 2009 levels, while application volumes are continuing to be quite volatile.  Hiring levels for May 2010 were up by 17% over May 2009.  Application volumes were down by 7.44% from May 2009.

Retail employee retention rates are still up year-over-year, but the rate of increase has slowed quite a bit in the past few months.  This indicates that greater numbers of the employed are successfully changing jobs.  However, other evidence presented in this month's report indicates that the long-term unemployed are continuing to struggle.

A closer examination of long-term unemployment trends shows that 6.7 million people have been out of work for more than 26 weeks in the current recession, a 354% increase over October 2007 (economists' consensus on when the recession began).  Robert Yerex, Chief Economist at Kronos, estimates the cumulative earnings losses from long-term unemployment to be $196 billion even at minimum wage rates.

According the the US Bureau of Labor Statistics employment report released on Friday, U.S. employers created jobs at the fastest pace in three years in March.  Nearly, one-third came from temporary hiring for the 2010 Census.   Nonfarm payrolls rose by 162,000, the largest gain since March 2007.  Our April Retail Labor Index likewise increased, with a cautious analysis of these results following from Kelly Northrop of the Kronos Hiring Solutions Group:

The April release of the Kronos Retail Labor Index reveals that in March 2010, retailers increased hiring while the supply of applications decreased. Together, these trends pushed the Index up to 4.17%, on a seasonally adjusted basis (for every 100 applications received, 4.17 hirings occurred). Although this reflects a substantial 30% relative increase over the February Index level of 3.26%, at Kronos we continue to have a cautious outlook on retail hiring, for the following reasons:

The March release of the Kronos Retail Labor Index reveals that in February 2010 both applications and hires decreased over January 2010 levels on a seasonally adjusted basis.  The decrease in applications slightly outweighed the decrease in hires, so that the Index rose from 3.20% to 3.26%.  This means that for every 100 applications received, 3.26 hires occurred in February.

One developing trend is the increasing volatility of application levels.  The past few months have seen significant swings in application volumes, with increases in September and October followed by large decreases in November and December, and then a significant 20% month-to-month increase in January.

Currently, job applicants are forced to make employment decisions in an environment of extreme uncertainty about a job market recovery.  In this uncertain environment, positive economic news (such as a better-than-expected holiday sales season) will encourage new entrants to the job market - both those wishing to change jobs, as well as those who are out of work but who had stopped looking for work.  In the absence of sustained additional hiring by employers, these application surges will have limited durability.  We would not be surprised to see this volatility continue well into 2010.

The February release of the Kronos Retail Labor Index shows that in January 2010, retail applicants came back into the market in force, with a 20% increase in applications over December 2009.  We had observed a seasonally adjusted decline in applications at the end of 2009, possibly due to workers becoming discouraged by their holiday employment prospects.

Hiring for January was also down, but by a smaller 4.26%.  The good news is that although hiring was down compared to one month ago, it was up over one year ago, by 12%.  The combination of greatly increased application volumes, combined with a reduction in hiring, led to a decline in the Index of 20.41%, to 3.20% (for every 100 applications received, 3.2 hires occurred on average).

In this month's report we also introduce a new model of the consumer economy.  Through this model we will use data to observe how three major markets interact:  (1) the market for goods & services; (2) the financial markets which supply credit to consumers; and (3) the labor market which, through employment, enables spending, saving, and investing by consumers.  We will introduce the different components of the model in upcoming reports in 2010.

The conceptual model introduced in the current report demonstrates how consumers' motivation to increase their liquidity by decreasing their debt (negative liquidity), including exactly the kinds of revolving credit that retailers extend to stimulate purchases, correlates to the Index.  According to the report, a  “choke point” can be seen in late 2008, where at its peak the ratio of consumer liability to disposable income had  reached 138% in the U.S. Since that point, consumers have reduced the amount of revolving credit for the first time  since World War II. This has a direct negative impact on retail spending and thereby retail hiring.

What's your attitude toward retail spending these days?  Many retailers seem to be offering non-stop sales and promotions to loosen your wallet.  Are you biting?

The January release of the Kronos Retail Labor Index report provides results for the December 2009 Index as well as a year-end recap of trends in the applicant population.  The December Index level was the highest of 2009, at 4.02% (for every 100 applications received, 4.02 hires were made).  This result appears to be driven by a continued decrease in applications (the lowest since August 2008) which outweighed a 7.1% decrease in hirings relative to a year ago.

December unemployment numbers from the Bureau of Labor Statistics show that while unemployment remained constant at 10 percent, the “underemployment” rate, which includes those who have given up looking for work and those employed part time for economic reasons, rose slightly from 17.2% to 17.3%.  We will be watching Kronos application levels closely to see whether recent declines in application volumes are  the result of discouraged unemployed workers giving up on applying, or whether they reflect early signs of an improving labor market.

Holiday 2009 recap. In reviewing the holiday hiring season, which typically is in full swing by October, some interesting dynamics emerged when we compared 2008 and 2009.  September and October Index levels were far higher in 2008 than in 2009, with a new all-time low reached in September 2009 (2.58%), and with only a slight rebound in October 2009 (2.90%).  These numbers reflect the extreme caution with which retailers approached the holiday 2009 season, after being burned by low sales and heavy discounting in 2008.  However, a hiring surge in late November, combined with a decrease in applications, pushed the November 2009 Index above the November 2008 level.  This trend evened out in December, with December 2009 and December 2008 Index levels at the same 4% level.

These Index patterns reflect overall trends in holiday season sales.  In 2008, the extremely weak holiday sales surprised retailers; accordingly, hiring rates were relatively strong early in the season in September and October 2008.  After this experience, and in light of sales projections, retailers held back on hiring in September and October 2009, planning to add staff on an as-needed basis.  By November 2009, with retail sales at an adequate level - 1.3% higher than in November 2008, according to the Census Bureau - retailers were confident enough to add staff in the latter half of November; seasonal sales were weighted towards the end of the season, with December same-store sales posting a 2.8% increase over December 2008, according to the International Council of Shopping Centers.

2009 and the changing applicant pool. Our analysis of application data collected via the Kronos hiring system has revealed some interesting trends which reflect wider changes in the labor market and unemployment rates.  Highlights include:

Guest Blog from Kelly Northrop, Analytics Consultant at Kronos:

The December release of the Kronos Retail Labor Index shows that retailers are engaging in a late ramp-up in hiring for the holiday sales season.  The Retail Labor Index rose significantly in November to 3.87, which means that for every 100 applications, 3.87 hirings occurred. This is the highest Index level to date in 2009, and is also higher than the November 2008 level of 3.51.  By comparison, Index levels in November 2006 and November 2007 were 6.74 and 6.41, respectively.

While cumulative holiday season hirings are still below the historical volumes of 2006-2008, it appears that retailers are beginning to feel more confident about the post-Thanksgiving shopping season.  Especially in conditions of high unemployment, employers can staff up quickly to meet demand.  It appears that they are doing just that, with a late-season surge in hiring that accelerated toward the latter half of November.

However, it was not solely the increase in hirings that pushed the Index to its 2009 high; there was also a seasonally adjusted decrease in applications in November.  This was the first decrease in 2009 and followed 10 successive months of increases in the applications level.  This is likely a combination of multiple factors, including discouragement on the part of potential applicants and reduced advertising for seasonal opportunities on the part of retailers.

The unemployment statistics for November published on Friday also provide a glimmer of hope that we may have begun a recovery, with unemployment dropping to 10% in November from 10.2% in October. While retail hiring was up, Kelley's post above mirrors similar observations by the Wall Street Journal on Friday (full story only available to subscribers); i.e. that the RLI is up in part because the applications are decreasing as discouraged candidates stop applying.  According to the Journal article, one silver lining in this equation for employers is that retailers who are hiring are attracting more highly skilled candidates who come up to speed more quickly.

This mention on WISN news in Milwaukee this morning is typical of the many television and radio broadcast mentions of the RLI.

Do you think the RLI portends a continuing recovery, or is this a seasonal blip?

Guest Blog from Kelly Northrop, Analytics Consultant at Kronos:

The November release of the Kronos Retail Labor Index includes results for both September and October 2009.  After an uptick in August to 3.00%, the September Index dropped to 2.58% (for every 100 applications received, 2.58 hirings occurred).  The September result coincided with a decrease in retail sales estimates by the U.S. Census Bureau.

The October Index level rebounded somewhat, to 2.90%.  Actual application and hiring data for October gives us an early view into the holiday shopping and hiring season.  Kronos' retail clients traditionally transact 25% or more of their total year's hiring volume in October and November.  Because labor capacity can be quickly augmented, a retailer expecting a slow holiday sales season might delay hiring until sales begin to increase.

Our results indicate that retailers appear to be preparing for another weak holiday shopping season. Changes in labor capacity levels for Kronos clients reflect not only an overall downward trend since 2006, but also sequentially smaller increases in capacity during the holiday season in 2008, and now 2009.  In addition, September and October 2009 application totals were the highest since 2006, while hiring levels were the lowest since 2006.  Our December report will show whether November hirings increased to compensate for this early lack of volume, or whether diminished hiring activity continued throughout the season.

Click here for the full report.

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