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What’s the Easter Bunny Bringing for Retailers?

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Latest employment update

The Bureau of Labor Statistics (or BLS) of the US Department of Labor provides data on employment and related metrics on a monthly basis. The latest release on March 6, 2015, reported a drop in the unemployment rate for the month of February 2015.

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Unemployment drops to a six-year low

The unemployment rate in the month of February 2015 moved down to 5.5% from 5.7% in January. Total non-farm payroll employment was up by 295,000 in February on a seasonally adjusted basis. Employers added jobs in food services, professional and business services, construction, health care, and in transportation and warehousing.

Labor force participation

The labor force participation rate reflects the number of people in an economy who may be either employed or unemployed, but actively looking for a job, expressed as a percentage of the working age population. The labor force participation rate, on a seasonally adjusted basis, was 62.8% in February 2015. This was a very slight change compared to 62.9% in January 2015.

The labor force participation rate has been declining for many years due to the ongoing retirement of the baby boomers, as well as a decline in labor participation in the younger population. Also, some people have been discouraged by the job market and stopped looking for work, dropping out of the job market altogether. This has reduced the participation rate.

Impact on retailers

With the upcoming Easter season, more jobs might translate into higher spending on discretionary products in department stores like Kohl’s Corporation (KSS), Dillard’s (DDS), Macy’s (M), and JC Penney (JCP). The SPDR S&P Retail ETF (XRT) allocates ~6.0% to department stores. The iShares Core S&P 500 ETF (IVV) has about 12.6% exposure to the consumer discretionary sector.

However, investors need to be cautious due to the declining trend in the labor force participation rate. Also, the “Not in labor force” individuals increased to 92,898 individuals in February 2015, compared to 92,544 in the prior month on a seasonally adjusted basis. The expenditure on discretionary items not only depends on jobs data, but also on the wage levels in the economy.

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