Author: Helen Thomas

September 2, 2014

Serious labor shortages in the world’s advanced economies will create unprecedented challenges for business leaders and policymakers over the next fifteen years and beyond, according to a comprehensive new report released today by The Conference Board.  From Not Enough Jobs to Not Enough Workers forecasts the impact of aging populations to compound rapidly as increasing numbers of baby boomers depart workforces.  It draws on first-of-its-kind analysis of the relative risk of shortages in myriad individual labor markets, including 32 national economies, 266 industries and 464 occupations in the United States, and 40 occupations in Europe.

“Mature economies are facing a historical turning point: for the first time since World War II, working-age populations are declining,” said Gad Levanon, Director of Macroeconomic Research at The Conference Board and a co-author of the report.  “The global financial crisis and its aftermath – stubbornly high unemployment in many countries – have postponed the onset of this demographic transformation, but will not prevent it from taking hold.  Companies in the U.S., Europe, and elsewhere must begin planning now for an environment in which difficulties recruiting and retaining workers will make it significantly harder to control labor costs without losing labor quality.”

Jobs – Now Hard to Find, Soon Hard to Fill

In examining likely labor market trends in dozens of advanced economies, the report draws particular distinction between short-term outlooks – which reflect the continued impact of the Great Recession on various countries – and long-term forecasts rooted in demographic fundamentals.  Indeed, while current labor markets in mature economies are not particularly tight overall – wage growth and labor turnover both remain below prerecession levels – this aggregate picture conceals huge variation between countries, with rapid reversal from labor surplus to shortage in many.

The growing labor market tightness can be traced in the gap between current unemployment and the estimated natural rate of unemployment.  Already, Canada, Germany, Japan, and South Korea have reversed any effects of the recession and fallen below their natural rate of unemployment.  The United States and United Kingdom are likely to follow in 2014-15, while countries like Australia, Sweden, Belgium, and Denmark will cross the threshold by 2016-17.  The hardest hit European economies – Greece, Spain, Italy, and Portugal – as well as France will likely retain slack labor markets for longer, with natural rates of unemployment unlikely to be reached until after 2018.

To determine long term trends, From Not Enough Jobs to Not Enough Workers introduces a Labor Shortage Index which combines current labor market tightness with future demographic developments factors to predict the likelihood of countries experiencing labor shortages in 2025:

• Germany faces the largest risk of labor shortages among 32 countries compared, based on negative projected labor force growth and an unemployment rate already below the natural level.  Germany’s highly integrated Central European neighbors – including Hungare, Poland, Austria, Slovakia, and the Czech-Republic – face risks nearly as high.
• Despite the severity of the economic crisis in Mediterranean countries, they may in fact see labor shortages by 2025.  With minimal productivity growth and a large working-age population decline projected, Italy is at particularly high risk.
• The Asia-Pacific picture is mixed.  Already experiencing one of the world’s tightest labor markets, Japan faces similar demographic pressures as Germany in the decade ahead.  High productivity growth should moderate the risk in South Korea.
• The risk of labor shortages in the United States will be moderate in a global context, as its working-age population grows minimally – but faster than most mature economies due to immigration.  Risks in the U.K., France, and Canada will be broadly comparable to the U.S.

Ground Zeroes for the Looming Labor Shortage

Drilling deeper into country-wide data, the Future Occupational Labor Shortage Index introduced in the report identifies the industries most likely to face a scarcity of qualified talent over the next decade.  The interaction of two factors – the speed of employment growth and the net number of new job market entrants (or departures) – determines the level of risk for any particular occupation.

Occupational data from the United States indicates that future labor shortages will cluster around three major categories of concern:

• Health-related occupations.  The same aging of the U.S. population that will curtail working-age population growth to as low as 0.15 percent by 2030 is also driving up demand for medical workers.  At the same time, high education and experience requirements limit entry into the job market.  The result is a dearth in many healthcare professions, including occupational therapy assistants, physical therapists and therapist assistants, nurse practitioners and midwives, and dental hygienists.  Among doctors, optometrists and podiatrists are the specialists most at risk of shortage, with the general physicians and surgeons category not far behind.
• Skilled labor occupations.  These jobs typically require more than a high school education, but not a bachelor’s degree.  Unlike healthcare, the primary driver of shortages here is not increased demand – employment growth is expected to be low in the coming decade – but instead a rapidly shrinking supply of young people entering these fields as increasing numbers retire.  Skilled labor occupations most at risk include water and wastewater treatment plant and system operators, crane and tower operators, transportation inspectors, and construction inspectors.
• STEM occupations.  U.S. ploicymakers have long been concerned about shortages in science, technology, engineering, and mathematics, but many of these fields rank surprisingly average in a national context.  Moderating the risk of shortages is the relatively high number of young entrants compared to baby-boomer retirees, as well as the large proportion of new immigrants in STEM jobs.  Moreover, strong productivity growth means that output will continue to expand in areas like information technology, telecommunications, and high-tech manufacturing even as workforces in these jobs are expected to shrink.  Nevertheless, certain STEM fields – including mathematical science, information security, and civil, environmental, biomedical, and agricultural engineering – do face significant shortages.

“Our extensive database of occupational data points to the U.S. industries most at risk of labor shortages,” said Levanon.  “Topping the list are: healthcare, including hospitals and nursing facilities; transportation industries, including ground passenger, water, and rail transport; utilities; social assistance; and mining and construction.”

“European occupational and industry data reveal a similar profile of risks, with social services, health professions, and medium-skilled trade occupations facing impending labor shortages,” said Bert Colijn, Senior Economist, Europe at The Conference Board and a co-author of the report.  “STEM jobs will also see higher pressures than in the U.S., while the low-skilled occupations that form the crux of the current unemployment crisis in much of Europe are unlikely to see higher demand.  This puts the onus on governments, education systems, and business to retrain workforces in the decade ahead.”

Source: The Conference Board

August 31, 2014

Improved merchandising strategies and marketing execution at Big Lots has president and CEO David Campisi feeling good about prospects for a company that continues to distance itself from its closeout roots.

Big Lots produced a 1.7% same store sales increase during its second quarter ended August 2 and generated earnings per share of 31 cents, a penny higher than the company’s forecast range of 24 cents to 30 cents.  Total sales increased 1.2% to $1.2 billion.  Profits from continuing operations declined to $17.2 million from $21.5 million and earnings per share of 31 cents were also below the prior year’s 37 cents.  Profits suffered as expenses increased 34.5% of second quarter sales compared to 33.9% in the second quarter the prior year.  Gross margins were flat at 39.3%.  Inventories at U.S. stores declined by 6%.

The top line performance was modest and the better than expected profits were below the prior year, but Campisi said he was very pleased with the results with five of the company’s seven merchandise categories posting positive comps.

“For the second consecutive quarter, our comps were positive and comfortable within the guidance range we provided, and our earnings were above the high end of our range.  We believe this is an indication that our core customer is responding to our improved merchandising strategies and marketing execution.”

Those strategies include a shift toward cleaner, more orderly merchandised stores with a reliably available assortment of products in categories such as food and consumables where leading national brands are available.  The company expects to have freezers and coolers in roughly half of its stores by the holidays and is also enjoying success with the furniture category where it offers financing.

It’s all part of an effort to distance itself from the negative image the company had created for itself as a retailer who sold closeout merchandise in cluttered stores.  In fact, in a subtle shift evident in the second quarter, Big Lots now describes its 1,495 store operation as a “unique, non-traditional, discount retailer,” whereas it had previously characterized itself as “America’s largest broadline closeout retailer.”

The result of the changes is more suppliers of branded merchandise are interested in doing business with the company and tapping into the growth potential of its nearly 1,500 stores.  According to CFO Tim Johnson, the company has streamlined its supplier base and is attracting more interest from major suppliers who are no longer embarrassed to see their products in Big Lots stores.

Source: Retailing Today

September 2, 2014

New Orders, Employment and Production Growing; Inventories Growing; Supplier Deliveries Slowing

Economic activity in the manufacturing sector expanded in August for the 15th consecutive month, and the overall economy grew for the 63rd consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report on Business.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.  “The August PMI registered 59 percent, an increase of 1.9 percentage points from July’s reading of 57.1 percent, indicating continued expansion in manufacturing.  This month’s PMI reflects the highest reading since March 2011 when the index registered 59.1 percent.  The New Orders Index registered 66.7 percent, an increase of 3.3 percentage points from the 63.4 percent reading in July, indicating growth in new orders for the 15th consecutive month.  The Production Index registered 64.5 percent, 3.3 percentage points above the July reading of 61.2 percent.  The Employment Index grew for the 14th consecutive month, registering 58.1 percent, a slight decrease of 0.1 percentage point below the July reading of 58.2 percent.  Inventories of raw materials registered 52 percent, an increase of 3.5 percentage points from the July reading of 48.5 percent, indicating growth in inventories following one month of contraction.  The August PMI is led by the highest recorded New Orders Index since April 2004 when it registered 67.1 percent.  At the same time, comments from the panel reflect a positive outlook mixed with caution over global geopolitical unrest.”

Manufacturing expanded in August as the PMI registered 59 percent, an increase of 1.9 percentage points when compared to July’s reading of 57.1 percent.  August’s PMI reading of 59 percent is the highest reading since March 2011 when the PMI registered 59.1 percent.  A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 43.2 percent, over a period of time, generally indicates an expansion of the overall economy.  Therefore, the August PMI indicates growth for the 63rd consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the 15th consecutive month.  Holcomb stated, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through August (55 percent) corresponds to a 3.9 percent increase in real gross domestic product (GDP) on an annualized basis.  In addition, if the PMI for August (59 percent) is annualized, it corresponds to a 5.2 percent increase in real GDP annually.”

Of the 18 manufacturing industries, 17 are reporting growth in August.

Source: Institute for Supply Management 

September 2, 2014

The Family Dollar board is under new pressure to walk away from a deal with Dollar Tree after Dollar General further increased an already more generous counter offer.

Early Monday Dollar General increased its all cash offer to $80 a share from $78.50 a share and increased the number of stores it said it would be willing to divest to 1,500 from 700.  The company also said it would be willing to pay Family Dollar a $500 million reverse break-up if the deal failed to secure antitrust clearance.

Family Dollar already has an acquisition in place with Dollar Tree for $74.50 a share, consisting of $59.60 in cash and $14.90 in Dollar Tree shares.  While Dollar General’s initial proposal was richer and all cash, concerns surfaced that regulqtory approval could be an issue even though Dollar General indicated it would divest up to 700 locations.

“We are confident that our enhanced proposal sufficiently addresses any concerns that led Family Dollar’s board of directors to reject our prior proposal without any discussions between our companies,” said Rick Dreiling, Dollar General’s chairman and CEO.  “Even as a secondary antitrust review supported our previous proposal, we revised our offer to demonstrate the seriousness of our commitment.  Our revised proposal provides Family Dollar shareholders with significantly increased value over the existing agreement with Dollar Tree, as well as immediate and certain liquidity for their shares.  If the Family Dollar board fails to seize this opportunity to maximize value for its shareholders, we will consider taking our superior proposal directly to the Family Dollar shareholders.”

Dollar General believed its earlier 700 store divestiture commitment would have been sufficient to clear any review by the Federal Trade Commission and suggested those analyzing the deal on behalf of Family Dollar are using a flawed methodology.

“Perhaps Family Dollar’s advisors are analyzing this transaction as if it were a potential grocery store merger or utilizing data that tells a story much different than Dollar General’s documents and data,” according to a Dollar General statement.  “Dollar General is confident that this matter would not be evaluated as traditional grocery store merger and that, as the acquirer, Dollar General’s documents and data would be more important to the FTC in its analysis than those of Family Dollar.”

Those documents indicate that Dollar General is more concerned about competition from Walmart than Family Dollar and it makes pricing decisions accordingly.

In a letter to the Family Dollar board, Dreiling expressed disappointment that the Dollar General’s earlier bid was rejected without any conversations but said the company was committed to the deal.  The company took the added measure of engaging Richard Feinstein of Boies, Schiller & Flexner to independently review the company’s earlier antitrust analysis.  Feinstein led the FTCS Bureau of Competition until 2013 and determined the deal can be completed on the company’s initial terms.

“We look forward to the time when our companies and their advisors are able to disucss these matters more openly with one another once you have taken the appropriate steps under your existing merger agreement to allow that to happen,” Dreiling said.  “Only by engaging with us can you ensure that you have fulfilled your duty to your shareholders to be well-informed and that you have acted in the best interests of your shareholders to maximize the value of their shares.”

Source: Retailing Today 

August 28, 2014

An increased risk of an emerging El Nino and a continuation of warmer than normal ocean waters in the Atlantic will produce warmer and wetter conditions along the East Coast along with an elevated tropical system risk.  The total number of tropical systems will be reduced overall, but should a storm threaten the U.S., the East Coast would be at highest risk.  Much cooler weather will be common across the Plains with increased rainfall east of the Rockies.  The western third of the nation will trend much drier as the flow of monsoon moisture is cut off earlier than normal, while temperatures are generally similar to last year.  Demand for autumn apparel will lag until the end of the month in the East when demand starts to pick up.  A warm stretch of weather around mid-month in the East will extend the summer season in the South and provide a final opportunity for summer clearance farther north.

Source: Retailing Today, Weather Trends International

August 28, 2014

The Multifamily Production Index (MPI), a leading indicator for the multifamily market released by the National Association of Home Builders (NAHB), posted a gain of five points to a reading of 58 for the second quarter.  It is the 10th straight quarter with a reading of 50 or above.

The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100.  The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse.  The MPI provides a composite measure of three key elements of the multifamily housing market: construction of market-rate rental units, low-rent units and “for-sale” units, or condominiums.

In the second quarter of 2014, the MPI component tracking builder and developer perceptions of market-rate rental properties had a significant increase of nine points to 68, which is the highest reading since the third quarter of 2012; low-rent units increased four points to 52; and for-sale units rose two points to 56.

“We have seen steady growth for the apartment market since 2011,” said W. Dean Henry, chairman of NAHB’s Multifamily Leadership Board and CEO of Legacy Partners Residential in Foster City, California.  “There will continue to be strong demand for the forseeable future, but the availability of construction labor is still proving to be a challenge.”

The Multifamily Canancy INdex (MVI), which measures the multifamily housing industry’s perception of vacancies, was essentially unchanged, increasing one point to 38.  With the MVI, lower numbers indicate fewer vacancies.

“The MVI, the vacancy index, has been holding steady at a healthy level of 37 to 38 since late 2013,” said NAHB Chief Economist David Crowe.”  Although this is slightly above the low vacancy numbers we saw in 2011 and 2012, those low numbers were the result of depressed production with few new apartments coming on line.  Meanwhile, the strength of the MPI, the production index, in the second quarter is not surprising, given that we’ve seen employment improve, which allows younger consumers to form their own households.”

The MPI and MVI have continued to perform well as leading indicators of U.S. Census figures for multifamily and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.

Source: National Association of Home Builders

August 26, 2014

The Conference Board Consumer Confidence Index, which had increased in July, improved further in August.  The Index now stands at 92.4, up from 90.3 in July.  The Present Situation Index increased to 94.6 from 87.9, while the Expectations Index edged down to 90.9 from 91.9 in July.

Says Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumer confidence increased for the fourth consecutive month as improving business conditions and robust job growth helped boost consumers’ spirits.  Looking ahead, comsumers were marginally less optimistic about the short-term outlook compared to July, primarily due to concerns about their earnings.  Overall, however, they remain quite positive about the short-term outlooks for the economy and labor market.”

Consumers’ appraisal of current conditions continued to improve through August.  Those saying business conditions are “good” edged up to 23.9 percent from 23.3 percent, while those claiming business conditions are “bad” declined to 21.5 percent from 22.8 percent.  Consumers’ assessment of the job market was also more positive.  Those stating jobs are “plentiful” increased to 18.2 percent from 15.6 percent, while those claiming jobs are “hard to get” declined marginally to 30.6 percent from 30.9 percent.

Consumers were slightly less optimistic in August about the short-term outlook.  The percentage of consumers expecting business conditions to improve over the next six months held steady at 20.4 percent, while those expecting business conditions to worsen fell to 10.2 percent from 12.1 percent.  Consumers, however, were somewhat mixed about the outlook for the labor market.  Those anticipating more jobs in the months ahead fell to 17.0 percent from 18.7 percent, although those anticipating fewer jobs also declined to 15.8 percent from 16.6 percent.  Fewer consumers expect their incomes to grow, 15.5 percent in August versus 17.7 percent in July, while those expecting a drop in their incomes rose marginally to 11.9 percent from 11.1 percent.

Source: The Conference Board

August 28, 2014

Dollar General made the case for the superiority of its Family Dollar takeover bid with the release of second quarter results that revealed consistency as well as some deceleration in sales and profit growth.

Sales at the company’s more than 11,500 stores increased 7.5% to slightly more than $4.7 billion due to new store expansions and a same store sales increase of 2.1% driven by growth in customer traffic and average transaction size.  During the first half of the year, Dollar General opened 426 new stores and remodeled or relocated 585 others.  The second quarter was the 26th consecutive period in which traffic and transaction size metrics have increased, according to Dollar General chairman and CEO Rick Dreiling.

Meanwhile, profits increased 2.4% to $251 million, or 83 cents a share, in line with analysts’ estimates, compared to prior year profits of $245 million, or 75 cents a share.

“Our second quarter same-store sales began very strong with a year over year increase in May of more than 3.5%, however, this growth moderated as we moved through June and July given the competitive environment and a consumer who, although resilient in the face of economic uncertainty, remains cautious with her spending,” Dreiling said.

Sales of consumables continued to outpace sales of non-consumables with the company reporting the most significant growth in categories such as tobacco, perishables, candy and snacks.  The company said it also saw solid same-store sales growth was also reported in the home and apparel categories.  The competitive environment cited by Dreiling prompted Dollar General to increase promotional activities which caused gross margins to decline 53 basis points to 30.8%.  The other source of ongoing margin pressure is the fact that Dollar General continues to derive a larger percentage of its sales from lower margin consumable categories such as tobacco and perishables.

“As we enter the third quarter, we are seeing our sales momentum pick back up and expect that momentum to build as our initiatives gain traction with our customers,” Dreiling said.  “For the second half of the year, we are well positioned to serve our customers and provide them with the everyday low pricing they count on from us.”

Dollar General also believes it is well positioned to consummate one of the largest acquisitions the retail industry has seen in years.  The company hopes to prevail in its efforts to acquire rival Family Dollar which has already agreed to be acquired by Dollar Tree.  The deal has the potential to create a combined company with a massive nationwide footprint of roughly 20,000 locations.

“In regards to our proposal to acquire Family Dollar, we remain firmly committed to the acquisition,” Dreiling said.  “The financial benefits of our offer to Family Dollar shareholders are indisputable, and the proposed combination would unlock tremendous value for Dollar General shareholders.  We continue to believe the potential antitrust issues are manageable and that our transaction as proposed is both superior and achievable.”

Dollar General has offered to acquire Family Dollar for $78.50 a share in an all cash deal valued at $9.7 billion it contends could secure regulatory approval with the divesture of as many as 700 stores.  Its takeover offer came after the boards of Dollar Tree and Family Dollar had already approved a $74.50 per share deal valued at $8.5 billion that consisted of $59.60 per share in cash and $14.90 in Dollar Tree shares.

Source: Retailing Today 

August 25, 2014

Sales of newly built, single-family homes fell 2.4 percent to a seasonally adjusted annual rate of 412,000 units in July, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.  Sales Numbers for June were revised up 16,000 to 422,000.

“We are somewhat surprised by this dip, considering builder confidence and new home starts are on the rise,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Delaware.  “However, builders are increasing their level of inventory in anticipation that sales will gradually improve during the rest of the year.”

“Though new home sales is a volatile metric that can fluctuate significantly from month to month, the economic fundamentals are in place for an ongoing housing recovery,” said NAHB Chief Economist David Crowe.  “Consumer confidence continues to improve, mortgage rates are at yearly lows, and the labor market is healing.  These factors should help spur pent-up demand.

Regionally, new home sales fell 30.8 percent in the Northeast, 8.8 percent in the Midwest, and 15.2 percent in the West.  Sales were up 8.1 percent in the South, the country’s largest region.

The inventory of new homes for sale increased to 205,000 units in July.  This is a 6.0 month supply at the current sales pace.

Source: National Association of Home Builders

August 14, 2014

Walmart met low second quarter sales and profit expectations it set for itself, but significantly lowered its full year outlook due to a tepid third quarter sales forecast and increased e-commerce and health care costs.

Total company sales increased 2.8% to $119.3 billion while same store sales at U.S. stores and Sam’s Clubs were flat during the period ended July 31.  The total sales figure included a $696 negative impact related to foreign currency translation, without which sales would have increased 3.4% to $120 billion.  Net income increased 0.6% to $4.093 billion from $4.069 billion, but earnings per share declined to $1.21 from $.123.  Walmart had forecast earnings in a range of $1.15 to $1.25 and analysts’ consensus estimate was $1.21.

Despite the decline from the prior year, Wal-Mart Stores, Inc., president and CEO Doug McMillon said he was pleased with the earnings per share performance.

“As it relates to the positives from the quarter, I’m encouraged by the performance of our International business, our Neighborhood Market sales in the U.S. and by our e-commerce growth,” McMillon said.  “As it relates to our challenges in the quarter, we wanted to see stronger comps in Walmart U.S. and Sam’s Club, but both reported flat comp sales.  Stronger sales in the U.S. businesses would’ve also helped our profit performance.”

The flat U.S. comp performance followed a 0.3% decline the prior year, as an increase in transaction size offset a decline in traffic.  Total sales for Walmart’s largest division increased 2.7% to $70.6 billion due to the addition of new selling space.  However, operating profits fell 2.4% to $5.25 billion.

“We delivered net sales growth of $1.9 billion in the second quarter,” said Greg Foran, Walmart U.S. president and CEO.  “Our e-commerce business, including store-fulfilled sales, delivered double-digit sales growth,” added the former Walmart International executive who replace Bill Simon as head of the U.S. division last week.

Same store sales at U.S. stores are forecast to be flat in the third quarter following a 0.3% decline last year.

Sam’s delivered top line growth due to the addition of new clubs, but same store sales were flat.  Total sales increased 1.7% to $13 billion, excluding fuel.  Operating profits fell 4.6% to $494 million.

“Our top priority at Sam’s Club remains growth – growing our member base and growing sales,” said Rosalind Brewer, Sam’s Club president and CEO.  “We’re taking steps to increase the value of membership through investments in Plus member cash rewards and the cash back Mastercard.  It’s still early, but member response has been positive.

Sam’s is expecting third quarter comps to be slightly positive.

The relative bright spot in Walmart’s second quarter was the international division where sales on a constant currency basis increased 5.3% to %34.6 billion and operating profits grew 8% to nearly $1.5 billion.

“We remain focused on price investment across all our markets and expect to continue driving improved comp performance,” said David Cheesewright, Walmart International president and CEO.  “I am pleased with the trends in many of our markets, which were driven by a continued focus on being the lowest cost operator.”

Faced with ongoing difficulties to drive top line growth at its two U.S. divisions coupled with expense pressures, Walmart said it expects third quarter earnings per share of $1.10 to $1.20 and lowered its full year forecast to a range of $4.90 to $5.15 from an earlier forecast of $5.10 to $5.45.

“Our guidance includes incremental investments in e-commerce and headwinds from higher health-care costs in the U.S. than previously estimated,” said CFO Charles Holley.

Source: Retailing Today