by Calculated Risk on 7/15/2006 07:00:00 PM

Danielle DiMartino writes: Retailers' actions point to recession

... we already know, from last week's labor report, that retailers were compelled to cut payrolls for a third consecutive month in June.

"More strikingly," Goldman Sachs chief economist Jan Hatzius wrote, "the year-on-year growth rate has plummeted from 1.3 percent in 2005 to -0.2 percent as of June 2006. Year-on-year declines in retail employment are unprecedented outside of recessions."

Is this decline in retail employment 'unprecedented outside of recessions'?


Click on graph for larger image.

Shaded areas are recessions according to NBER.

It appears that Hatzius is correct. But is it different this time? Maybe, with the rapid expansion of internet shopping, the model of retail has changed.

Or, as DiMartino apparently believes, the retailers are the first to detect the coming recession. She relates the decrease in retail employment to the slowdown in the housing market:

During the housing boom, home-equity withdrawals were a big contributor to consumers' ability to spend.

But in the first half of 2006, nearly 90 percent of refinancings were cash-outs, up from 20 percent in 2003.

In other words, it used to be that people refinanced their homes to lower their payments. Today almost all go through the exercise just to unlock cash.
...
It stands to reason that retailers would be the first to detect the diminution of this source of disposable income, which is at least partially to blame for the 86,000 jobs the sector has shed in the last three months.

"Retailers may have decided that the recent weakness in personal consumption will persist," Mr. Hatzius added.

Of course, the spin doctors are sure to dismiss the negative growth in retail employment. Sure, every time it's happened since 1945 it's presaged a recession. But it's bound to be different this time. Of course.