Looking for the True Value of the U.S. Employee

by Matthew Makowski, Research Analyst, The Oxford Club

The latest jobs report was rolled out by the U.S. Bureau of Labor Statistics last week. In case you haven’t heard, the unemployment rate in the U.S. hit 3.7%. That’s the lowest it’s been since December 1969.

Additionally, the closely tracked wage growth report signaled that wages grew 2.8% from 2017.

These statistics indicate an increasingly healthy labor market. And wages are being driven higher to attract an increasingly sparse supply of workers.

But we’re not quite there yet. Despite rising wages, the American worker is still undervalued.

The current rate of wage growth still puts us below the 3.5% needed to compensate for the Federal Reserve’s 2% inflation target and 1.5% productivity growth.

Today’s real average wage (which accounts for inflation) has about the same purchasing power as it did in 1978, according to Pew Research. So wages aren’t actually going up - but at least they’re holding pretty steady.

In the near term, companies looking for skilled employees in this tight labor market are going to need to provide incentives of some sort to fill open positions.

If the unemployment numbers hold steady (I know that’s a big if) and the search for skilled workers continues, we could be poised for a paycheck reckoning in certain sectors.

This becomes a big deal when you consider the coming retail holiday hiring bonanza. The economy is still strong. And because U.S. consumer confidence is at its highest level in 18 years, according The Conference Board, lofty holiday sales are expected.

This means stores busy with customers... and a need for employees to help them.

Seasonal holiday hiring needs are expected to call for around 650,000 employees, according to the National Retail Federation. That’s in addition to the already outstanding more than 750,000 open retail positions across the country.

So what’s a store to do?

Kohl’s (NYSE: KSS) and J.C. Penney (NYSE: JCP) started their holiday hiring pushes way back in June. And Penney’s will be ponying up paid time off to its seasonal workers for the first time ever.

Dick’s Sporting Goods (NYSE: DKS) is looking to bolster its staff to improve the shopping experience and distinguish itself from online-only retailers.

Target (NYSE: TGT) announced last month that it will be increasing its seasonal workforce by 20% compared with last year’s. And it will be paying employees a full dollar more per hour.

Other companies are offering incentives, like signing bonuses, additional training and better employee discounts.

Macy’s (NYSE: M) this year introduced a new plan that awards employees a quarterly bonus based on performance. Macy’s CEO Jeff Gennette recently stated that the program has helped bring down turnover and attract new workers.

Higher pay and incentive plans aren’t free though. They could cut into fourth quarter profits for retailers depending on whether sales expectations are merely met or exceeded.

If the lines are long this holiday season and you notice unstaffed checkout lines, it could be an indicator of how well these hiring plans are working out... and how Q4 earnings reports will look.

These are good problems to have for the American worker. By all accounts, the proverbial ball seems to be in the workers’ court right now. And that has investors a little spooked.

Shareholders have been dumping stocks in the retail sector at an aggressive pace due to worries of shrinking profit margins... making now a perfect time to make a play on undervalued stocks in this sector.

Good investing,

Matthew

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