Wage, Job Gains Hint at Inflation Ahead for Retailers

More money, more problems.

OK, not really — but we note that some of the headline economic data released this morning may point to a mixed near term outlook for consumers, and retailers.

The Labor Department stats Friday (June 3) show that employers added 390,000 jobs, proof positive that the pandemic’s devastation of the job market is increasingly in the rearview mirror.

We’re moving toward a year and a half of monthly job gains, uninterrupted. That winning steak has brought the unemployment rate down to multi-year lows, to 3.6%.

Wages seem on an inexorable upswing, too.

Average hourly earnings gained 30 basis points month over month, and are up more than 5% year on year.

On the face of it, the data should be good news for commerce. Higher wages would mean that consumers might feel a bit more flush, and as we’ve seen in recent earnings reports, consumers keep on spending.

But.

There’s a tightrope to walk here, and it’s increasingly difficult to navigate. For the businesses that have to pay those higher wages — in order to remain competitive for talent — well, those costs are going to be passed along somewhere, somehow.

Chiefly in the form of higher prices for the goods and services that are being paid by their targeted consumers.

As the stream of PYMNTS latest Main Street reports show, there’s at least some uncertainty in the mix as to how it all shakes out. Some 64% of Main Street respondents expect to see solid sales growth in the present year — and yet 50% say that economic uncertainty could hurt performance. In the meantime, wages and employment are growing faster than the actual pace of creating establishments themselves, which points to further pressures from the job market and inflation.

Read more: Half of Main Street SMBs Say Economic Uncertainty Threatens Business Performance

We have not reached the tipping point yet, but the pass-along of these operating pressures on the consumer will create more difficulty for the paycheck to paycheck consumer.

Very Little Wiggle Room  

As we’ve noted recently, more than 60% of us live P2P, where the money that comes into the household goes out the proverbial door to make ends meet, with little to nothing left over to go into savings. 49% of Americans earning more than $100,000 per year were living paycheck to paycheck in March, a slight decrease from 50% in the prior month — but still significant.

Paycheck-to-paycheck consumers without issues paying their bills have an average credit score of 694, while those struggling to pay bills each month have a below-average credit score of 613.

Paycheck-to-paycheck consumers are three times as likely to revolve credit card debt and carry higher monthly balances overall. The wiggle room to keep spending is getting tighter and tighter — and all at once, that paycheck, though nominally “bigger” does not make us feel all that flush. Pulling back where we can means that discretionary purchases are the first go — and tough times loom for retailers.

Read also: Paycheck-to-Paycheck Consumers 3x as Likely to Take On Credit Card Debt