Strong June Jobs Report Rocks Retail Stocks
The U.S. private sector added nearly half a million jobs last month, according to ADP.
The payroll processing firm’s June report shows non-public company jobs expanded by 497,000 in the month, for the strongest monthly gain since July last year. It’s a significant increase from May’s 267,000 gain and well ahead of Dow Jones’ 220,000 consensus estimate.
More from Sourcing Journal
The U.S. Department of Labor (DOL) will publish its June nonfarm jobs report on Friday detailing changes in retail sector employment trends.
ADP’s report shows that leisure and hospitality led growth with 232,000 new jobs. The other services group in the service-providing sector, which likely covers retail, increased by 28,000 jobs. But the overall manufacturing industry, including apparel, shed 42,000 jobs last month.
“Consumer-facing service industries had a strong June, aligning to push job creation higher than expected,” said Nela Richardson, ADP’s chief economist. “But wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge.”
People who didn’t change jobs saw their pay rise 6.4 percent year-over-year, slowing from a 6.6 percent year-on-year uptick in May, according to ADP. Pay improvements for job changers slowed for the 12th straight month to 11.2 percent. That’s the slowest pace of wage growth since October 2021.
Wells Fargo economists said the “still robust consumer spending in the service sector amid softer spending on goods” may explain why the manufacturing and service sectors are moving in opposite directions. Stronger spending on services is also “emboldening service providers to push through higher pricing,” they added, noting that consumers are giving them little reasons to drop prices.
The University of Michigan Index of Consumer Sentiment for June rose to 64.4 from 59.2 in May, while The Conference Board’s Consumer Confidence Index for the same month climbed to 109.7 from 102.5 the prior month. “Expectations for the next six months improved materially, reflecting greater confidence about future business conditions and job availability,” Dana Peterson, chief economist for The Conference Board, said last week.
In minutes released Wednesday, Federal Reserve officials suggested they might need to continue adjusting interest rates to match the pace of inflation.
UBS economist Jonathan Pringle, in a note published Thursday, said the Fed might be disappointed with the lack of progress on the inflation rate. While the “pause plan” was put into place in June because of “potential fragilities in the banking system,” the jobs report could suggest there’s “more work to do,” he wrote.
But Thursday’s unexpectedly strong ADP report sparked investor fears that the Fed could speeds up rate hikes. The Dow Jones Industrial Average reacted by shedding 495 points, or 1.4 percent, in mid-day trading. Other key indices—S&P 500 and Nasdaq Composite were also down by 1.4 percent and 1.6 percent, respectively—reflected investor concern over inflation.
Retail and apparel stocks reflected a sea of red in mid-day trading on Thursday. The RealReal Inc. fell 10.2 percent, or 24 cents, to $2.08; StitchFix Inc. was down 6.6 percent, or 27 cents, to $3.75; Farfetch was down 6.7 percent, or 41 cents, to $5.66; Victoria’s Secret & Co. fell 4.6 percent, or 89 cents, to $18.43; Nordstrom Inc. showed a 4.5 percent decline, or 90 cents, to $19.15, while Macy’s Inc. was down 3.4 percent, or 55 cents, to $15.81.
Companies with large wholesales businesses also showed declines. VF Corp. fell 5.2 percent, or 98 cents, to $17.99; Hanesbrands Inc. fell 3.8 percent, or 18 cents, to $4.43; Capri Holding Ltd. fell 3.5 percent, or $1.24, to $34.44 and Tapestry Inc. was down 2.8 percent, or $1.19, to $41.69.
