Retail Sales Are Back, but the Jobs Aren't

In the past year, unemployment hasn't declined much. It's only down to 9.8% in November, from 10.0% a year earlier. Yet, firm revenues have begun to recover, as GDP has grown consistently. This implies that firms are managing to increase their sales without hiring many more employees. Data today released on the retail sector, by the Census Bureau, shows this phenomenon pretty clearly.

Today's report provides data for the major retailers through the third quarter. Net sales and profits have both increased year-over-year. Sales rose by 5.5%, and profits jumped by 7.5%.

During this 12-month period, however, the industry added just 80,000 jobs.This hiring increased the retail sector's labor force by just 0.6%. That isn't much compared to the 5.5% increase in sales.

So if revenues and are growing, why isn't hiring as quickly? It must not have to. Remember, over this period profits rose by 7.5%, an even larger margin. This means that most retailers didn't need to bring on more workers to satisfy the consumer demand that they experienced. Indeed, they made more money by hiring fewer of their workers back. In other words, they were likely overstaffed to begin with.

In fact, as demand continues to rise, hiring might not get much more aggressive. From the period when the recession began in December 2007 through October 2009, 1.20 million jobs were shed by the retail sector. The 80,000 created since then doesn't nearly replace those. But revenues in the third quarter were the highest for the period ever:

retail sales q3 2010.png

So what about those other 1.12 million workers? The industry must not have needed them. After all, sales are back.

Hiring should continue as demand rises. But since sales have eclipsed their pre-recession levels, they probably won't increase very quickly going forward. That likely means hiring will also be relatively slow for the sector, as it will only reflect that increase in demand -- not replacing all of the workers let go during the recession by retailers.

Update: In response to a comment below, here's a chart showing that retail profits are also increasing, and have broken through pre-recession highs:

retail profit q3 2010.png