Economy
4:09 pm
Sat August 2, 2014

Economic Growth Hits Headlines, But Not Wallets

Originally published on Mon August 25, 2014 10:56 am

In a finance move you might have missed this week, Dollar Tree bought up Family Dollar. It's a marriage made in cheap, plastic goods heaven, at a time when dollar stores can provide a glimpse into the disconnect between an improving economy and stagnating wages.

Dollar stores were doing brisk business throughout the recession, but their profits have shrunk recently, partly because the economy is recovering. On Friday the Bureau of Labor Statistics released its jobs report for the month of June: For the first time since 1997, the economy added more than 200,000 jobs for six months straight.

But the jobless rate remains stubbornly mediocre at 6.2 percent. People are still worried, which was clear on a recent visit to a Dollar Tree in Los Angeles County, where there were still a lot of people looking to stretch their dollars.

"You take each day at a time. Some days I have money, some days I don't," said Latonya Wright, who was shopping for her son's frozen dessert business.

Wright said it is hard to tell whether or not the economy is getting better.

"You listen to the news and they say the economy is bad and stuff," she said, "but when you go to the malls or drive past any stores, you see people shopping."

She's right. The Commerce Department announced on Friday that consumer spending has grown by 2.5 percent this quarter. But at the same time, federal statistics show that the poorest Americans are earning less than they did a decade ago.

But it's not just the lowest-income folks shopping on the cheap; more than half of American shoppers have been to a dollar store in the last month.

Many such shoppers at the LA Dollar Tree said the same thing about the economy: it doesn't seem to be getting better or any worse.

"Yeah, I don't see it moving sharply for me in any one direction," said Sebastian Garcia-Vinyard, who was at the store with his wife and two sons.

Zoe Chace of NPR's Planet Money says the reason for that, and the big story out of the new jobs report, is wages — or rather, wages not going up.

"People aren't getting a lot more money as the months are going by," Chace says. "The reason for that is that there's actually still a lot more room for hiring. The employment rate is not back to a full employment level."

So employers aren't looking around and trying desperately to hire people; nor is there a lot of competition for jobs, because a lot of people are working.

"Until the unemployment rate gets a little bit lower, and employers are really competing to hire people, wages are going to stay kind of where they are," Chace says. "That's what we're seeing now and that's what we'll probably be seeing for the next couple of months.

Another problem is that some companies, while reporting higher profit margins, aren't really using that cash to hire more workers. Many have become leaner in the recession and have learned to do more with less, Chace says, or invested in automation. Even though those companies are more profitable, they're sitting on the money.

"They're not really spreading it around the economy," she says. "You can see a lot of uncertainty in the world still and companies want cash on hand in case there's another shock to the economic system."

We will likely continue to see good headline numbers, but Chace says the real measure will be when we see wage growth: people actually getting more money in their pockets.

"[That] shows that there's real competition out there among companies to hire workers," she says. And when people have more money, they spend more money, which creates more demand, so companies need to hire more workers. It's what Chace calls a "virtuous cycle":

"That's when things start humming along and everybody starts to feel better."

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

ERIC WESTERVELT, HOST:

Another big move in finance this week you may have missed - Dollar Tree bought up Family Dollar. It's a marriage made in cheap plastic goods heaven. Dollar stores were doing brisk business throughout the recession but now the economy is recovering. Yesterday the Bureau of Labor Statistics released its jobs report for the month of June. For the first time since 1997, the economy added more than 200,000 jobs for six months straight. Though, the jobless rate remains stuck stubbornly mediocre, at 6.2 percent. People are still worried. That's clear at a Dollar tree in LA County where there are still a lot of people looking to stretch their dollar. Latonya Wright has an armful of silver insulated bags. She's shopping for her son's frozen dessert business.

LATONYA WRIGHT: You take each day at a time. Some days I have money, some days I don't.

WESTERVELT: Can I ask about the economy too? For you, how do you feel about the economy right now?

WRIGHT: You know what? It's hard to tell because you listen to the news and they say the economy's bad and stuff. But when you go to the malls or drive past any stores, you see people shopping, so.

WESTERVELT: She's right. Yesterday the Commerce Department announced consumer spending has grown by two and a half percent this quarter. But at the same time, federal statistics show that the poorest Americans are earning less than they did a decade ago. And it's not just the lowest-income folks shopping here; more than half of American shoppers have been to a dollar store in the last month.

UNIDENTIFIED CHILD: And I got these.

UNIDENTIFIED WOMAN: Fake mustache.

WESTERVELT: Sebastian Garcia-Vinyard is here shopping with his wife and two sons.

SEBASTIAN GARCIA-VINYARD: It's a low-cost treasure hunt is what it is, right? Because they can pick anything out and it's a buck.

WESTERVELT: Can I ask you how you guys feel about the economy - in general, just in terms of your own feeling?

GARCIA-VINYARD: Neutral? Yeah, I don't see it moving for me sharply in any one direction. So I would say, status quo.

WESTERVELT: In fact, almost most everyone I talk to here said the same thing - the economy doesn't seem to be getting any better or really any worse. I asked Zoe Chace of NPR's Planet Money why people still feel like the recovery is stuck in low gear?

ZOE CHACE, BYLINE: So the big story out of the jobs numbers this week probably is about wages. So wages aren't really going up. People aren't getting a lot more money as the months are going by. And the reason for that is that there's actually still a lot more room for hiring. The unemployment rate is not back to, sort of, a full employment level where employers would really be looking around and trying desperately to hire people, a lot of competition for jobs because so many people are working. That's not the case. Until the unemployment rate, you know, gets a little bit lower and employers are really competing to hire people, wages are going to stay kind of where they are. And that's what we're seeing now and that's what we'll probably be seeing for the next couple months.

WESTERVELT: Zoe, what do you think some of the factors are on why companies are holding back a little on hiring more?

CHACE: You know, something that we really see is that companies are reporting pretty high profit margins. You know, companies are doing really well. You can kind of see that in how the stock market is doing. And then these earnings reports come out and companies seem to be making a lot of money. But a lot of the reason that they're making a lot of money is because the recession kind of shocked them. Companies got leaner, they started to kind of do more with less. Also invested in automation, basically, you know, robots instead of people to make them, sort of, more productive. The thing is though, the companies are maybe more profitable but they are kind of sitting on the money. They're not really spreading it around the economy. You can see a lot of uncertainty out in the world still and companies want cash on hand, in case there's another shock to the economic system.

WESTERVELT: So what are economists and market watchers like yourself thinking about, you know, when things might get better for average folks in the U.S.?

CHACE: You'll probably continue to see, you know, good headline numbers about the economy. But the thing to really watch is wage growth, people actually getting more money in their pockets. When you see wage growth, it shows that there's real competition out there among companies to hire workers. Workers are going to have more money in their pockets, which means they're going to be spending more which creates a sort of virtuous cycle. Basically, companies see more demand, they want to expand more, hire more workers. Workers get paid more; more money in their pockets. That's when things start kind of humming along and everybody starts to feel better.

WESTERVELT: Here's to the virtuous cycle. Planet Money's Zoe Chace. Thank you.

CHACE: Thank you. Transcript provided by NPR, Copyright NPR.