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Did Washington Save the Economy? Part 4


Facing a diminutive recovery.

Editor's Note: This is Part 4 in a 5-part series. Click here to read Part 1. Click here to read Part 2. Click here to read Part 3. Click here to read Part 5.

So far, the recovery has been on the diminutive side, with the first-quarter bounce amounting to 11,000 jobs. Even if the cyclical job recall in this sector eventually becomes stronger than this negligible first-quarter rate, it's likely to remain proportional to a tepid recovery of goods traffic in the US economy. Evidence for that can be seen in the fact that in March the distribution sector was still operating with 26,000 fewer jobs than as recently as September 2009 -- notwithstanding the material pick-up of trucking and wholesale activity rates since then. The fact is, most of the 700,000 jobs lost in the distribution sector during the two-year Slump represented liquidation of permanent capacity, not the mythical firing spree. Thus, if national goods traffic grows at a 2-3% annual rate from here -- which is actually an aggressive assumption when the lack of income growth and continued liquidation of consumer credit is considered -- the jobs gain would be 150,000 to 200,000 per year if proportional to volume, and most likely significantly less in light of actually business operating practices evident for a long time now.

The outlook for the retail side of distribution is even less "jobful." And this matters because the BLS "Retail Trade" category posted 14.4 million jobs in March, making it overwhelmingly the single largest component of the Core Private Business Services category. Despite a modest first-quarter uptick, the March figure was still down by 1.1 million jobs or 7% since the December 2007 peak A review of the four economically distinct sub-categories of the retail jobs market, however, suggests that it will be years before those lost retail jobs are recovered, if ever. The reason is that 8.3 million or nearly 60% of the March retail jobs were in three no-growth categories here labeled "auto dealers," "housing-related," and "food, drugs, and gas." Each of these categories is embedded in business conditions and historic trends which militate heavily against meaningful job gains during the recovery.

There were 4.6 million jobs posted in March for the food, drug, and gas category. Within this group, the prototypical situation is represented by the 820,000 jobs reported for gasoline stations. The figure was down by 1,000 jobs per month in the first quarter, which is the same as the 1,000-per-month job loss during the two-year Slump and is also identical to the 1,000 per month job loss at gas stations during the entire seven-year Boom. Perhaps this is another case where the BLS has entered a permanent proxy in lieu of actual monthly data collection. Still, the "contraction forever" trend seems unassailable given the sluggish-to-negative growth in gasoline sales and the steady de-monetization of service station labor through self-service.

What self-service has done to reduce career opportunities at gas stations has been duplicated by Walmart (WMT) in the much bigger 2.8 million-job food and beverage sector of retail; that is to say, inefficient grocery store labor has been sent packing by Walmart's entry into and now dominance of the business. This category lost 2,000 jobs per month during the seven-year Boom, and only slightly more, 3,000 monthly, during the two-year Slump. Consequently, the grocery store job count has dropped by 200,000 or about 7% over the last decade, and this outcome has nothing to do with the business cycle or post-Lehman firing binge. Until the "greens" actually stage a coup d'etat, Walmart's competitive efficiency will squeeze labor out of the food and beverage chains and independent operators that comprise this low-growth segment. There's likely to be no job recovery here at all.
No positions in stocks mentioned.

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