Daily Gains Letter

New Employment Trend Threatens U.S. Economic Growth

By for Daily Gains Letter |

Employment Trend Threatens U.S. Economic GrowthThe Bureau of Labor Statistics (BLS) reported that 162,000 jobs were added to the U.S. economy in July. The unemployment rate registered at 7.4%; in June, it was 7.6%. (Source: “Employment Situation Summary,” Bureau of Labor Statistics web site, last accessed August 2013.)

Looking at this, one must ask the question: is this a good sign for growth ahead in the U.S. economy?

On the surface, the picture does look rosy. The unemployment rate decreasing is actually a good sign, but sadly, there are some fundamental issues with the jobs market in the U.S. economy that need to be fixed before economic growth can fully take place.

First of all, the rate of decline in unemployment isn’t as impressive, having been above seven percent since December of 2008. Prior to the financial crisis in the earlier part of 2007, the unemployment rate in the U.S. economy was below five percent. There are still 11.5 million individuals unemployed in the U.S. economy, while 8.2 million Americans are working part-time because they are unable to find a full-time position. (Source: “Databases, Tables & Calculators by Subject,” Bureau of Labor Statistics web site, last accessed August 2, 2013.)

The second and most critical problem is that low-wage-paying sectors are witnessing robust jobs growth in the U.S. economy; for others, not so much. Jobs that pay better wages and provide employees with benefits are few in number.

In July, we experienced the same problem, as 47,000 jobs were added in the retail trade sector—this includes places like general merchandise stores, personal care stores, and building and garden supply stores. Meanwhile, 38,000 jobs were added in the leisure and hospitality sector; this includes food services and drinking establishments.

Combined, jobs in the retail trade and in the leisure and hospitality sectors made up more than half of all the jobs created in the month of July!

This trend has been going on for a while—it’s not just a discrepancy. Consider this: since the beginning of 2010, the number of employees in the retail trade sector of the U.S. economy has increased little more than 5.6%; meanwhile, in the same period, employment in the manufacturing sector has only increased by 4.5%. (Sources: “All Employees: Manufacturing,” Federal Reserve Bank of St. Louis web site, last accessed August 2, 2013; “All Employees: Retail Trade,” Federal Reserve Bank of St. Louis web site, last accessed August 2, 2013.)

The unemployment rate staying high and the growth in low-wage-paying sectors basically means that consumer spending might feel shocks. It’s very simple: when a person doesn’t have a job or they are working at one that pays them less, chances are they will pull back on their spending. This, in turn, can hurt growth prospects for the U.S. economy.

Keeping all this in mind, one way investors may profit from this situation is by looking at companies that witness an increase in sales when consumers in the U.S. economy feel scrutiny—when their pocket size is smaller and they want to stretch every dollar to its limit. One company they might consider looking at is Wal-Mart Stores, Inc. (NYSE/WMT). Likewise, they also might want to consider a company along the lines of Dollar Tree, Inc. (NASDAQ/DLTR), a discount store offering goods for the fixed price of $1.00.

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