They’re Running Out of Money: Walmart’s Warning and the US Labor Market Crisis (Analysis)

Walmart’s shocking announcement warns of grave danger to the US economy. We will explore what the big retailer is warning about and why it means the US labor market is in danger as consumers all over the country are running out of money.

Key Takeaways – Labor Market Crisis

Walmart’s New Training Programs: Walmart is introducing training programs to fill high-demand roles but the underlying issue is employee wages not keeping pace with inflation.
Economic Challenges: Despite reported revenue, many Walmart employees earn below the poverty line, highlighting broader economic issues.
Impact of Immigration: Increased job competition from undocumented workers is putting downward pressure on wages for American workers.
Rising Unemployment: Unemployment claims are rising, indicating potential economic slowdown and reduced consumer spending.
Federal Reserve Actions: The Fed’s efforts to curb inflation may inadvertently lead to a recession.

Walmart’s New Training Programs: A Solution or a Band-Aid?

“Walmart Rolls Out New Training Programs for Skilled Trades as It Tries to Fill High Demand Roles.” At first glance, it might seem that the US economy is booming and there aren’t enough skilled workers to fill all these roles. But the real underlying issue that Walmart is facing is pay. This is about the fact that their own employees, and we’re seeing this happen all around the country, cannot keep up with inflation.

Walmart is trying to make it look good by saying it will offer new training programs and certifications to fill high-demand roles across its business, such as HVAC technicians, opticians, and software engineers. The big-box retailer also said it will offer another reason for hourly store workers to stick around: a bonus of up to $1,000 a year. The underlying issue here is that Walmart’s own employees are not keeping pace with the economy. This is a huge challenge because, as we look at the data, we see that inflation is running faster than wage increases, which means employees and consumers all around the country are running out of money.

The company says its average hourly wage is nearly $18, up by about 30% over the past five years, with starting pay in stores ranging from $14 to $19 depending on the location. Even though they reported $648 billion in total revenue last year, the median employee compensation was only $27,600. The problem is this falls below the poverty line of $31,200 for a family of four, suggesting that Walmart can’t even pay its own employees enough money to stay out of poverty. This is just an issue we’re seeing all around the country as companies like Walmart, McDonald’s, Burger King, and even Target are saying that consumers are running out of money. They can’t afford discretionary items and are focused on cutting their budgets every way possible on all the things they need to have.

The Broader Economic Implications

What we’re seeing is that employers, including Walmart, just aren’t paying people enough. Walmart’s new programs give employees more ways to move into higher-paying jobs, which is great news as the company is piloting a six-month training program in the Dallas-Fort Worth area. Those skilled jobs will pay between $19 and $45 an hour. The initiative was inspired by a similar program for another high-demand role: truck drivers. The Associate-to-Driver program produced more than 500 new drivers since launching in the spring of 2022.

This might give the impression that the economy is booming and there just aren’t enough skilled workers for all the skilled jobs. However, the reality is that President Joe Biden is looking to cut immigration because people coming into the country are taking these jobs from American workers. We need to boost their skill set because Walmart is just not paying their employees enough.

If we look at average hourly earnings of production and non-supervisory employees versus the Consumer Price Index, we see that consumer prices remain sticky, yet wage growth is slowing significantly. We’ll have the official data on this tomorrow from the government, but it suggests that employees are not keeping pace with inflation. They’re not getting the hours they need, and they’re running out of money. This is a huge problem for the economy because when spending goes, jobs are next.

Immigration and the Labor Market

Wall Street is now realizing that most job growth in the past year has gone to illegal aliens. This is why President Joe Biden is stepping in to try to curb immigration because he realizes these people are taking low-wage jobs from Americans who don’t have the skill set to move into higher-wage jobs. Walmart is taking the first step, but it may be too little, too late.

For much of the past year, we have been highlighting two simple facts. From Zero Hedge, not only has the US labor market been appallingly weak, but most of the jobs gained in 2023, meant to signal a strong recovery, are about to be revised away, as admitted by the Philly Fed and Bloomberg. The issue is that a lot of job growth over the past few years has not gone to Americans. This is a big issue because when the labor market goes, Americans are the first to lose their jobs, and the higher-wage jobs are gone.

Echoing what we’ve said for months, immigration, particularly illegal immigration, has become an important factor in assessing economic performance. Detailed data from US Customs and Border Protection and US Citizenship and Immigration Services suggest that half of non-farm payroll growth this year has come from undocumented immigrants who have received an Employment Authorization Document (EAD). This data implies that undocumented workers have added 109,000 jobs per month to non-farm payroll out of the average 231,000 increase in the fiscal year. This means US workers are not keeping up with inflation, and now they’re competing with immigrant workers. This is dangerous because they will take low-paying jobs, squeezing American workers out.

In fiscal year 2023, 800,000 undocumented immigrants have found jobs, representing more than 25% of job growth. This is dangerous for US workers who need to upgrade their skills. The problem is they are competing with people who will work at any wage, putting downward pressure on average hourly earnings. When that happens, the labor market is at risk as initial jobless claims rise to eight-month highs.

Rising Unemployment Claims

According to the Bureau of Labor Statistics, 229,000 Americans filed for jobless benefits for the first time last week. This number is rising, and continued claims are around 1.8 million. When people get on unemployment, they’re unable to find jobs, and those who do find work are offset by new unemployment claims. The longer people stay on unemployment, the more their spending power declines, which Walmart has flagged as a problem. Discretionary spending has dropped as people focus on essentials.

From an economic perspective, more layoffs are coming. Average hourly earnings of production and non-supervisory employees show that unemployment claims rise as earnings decelerate. This is why President Joe Biden is looking to end this. The robust US labor market everyone claims is driving the economy is not robust at all. It’s about to fall apart because of a significant deceleration in average hourly earnings. We’ll get an update on this tomorrow, but continued claims are rising, and more people are competing for low-wage jobs, driving wages down even more.

Economic Consequences of Rising Unemployment

People on continued unemployment claims lose their purchasing power, leading to more job losses. Walmart is trying to keep people employed, but it may not succeed as first-quarter US labor costs are marked down due to weaker output and hours. Employers are cutting hours, which eventually leads to job cuts. Unit labor costs rose at a slower pace than initially reported because of inflation. This is a significant issue because the Fed wanted to bring inflation down, even if it meant reducing wages. This leads to more people on unemployment, reducing demand.

Unit labor costs are falling against inflation, suggesting we’re headed into a recession if not already in one. The Fed wanted productivity gains to lower consumer prices, but instead, labor costs are dropping, productivity is stalling, and there’s not enough work for employees. This is the problem. The Fed is sending us into a recession. Productivity reports show minimal output growth and a decline in real hourly compensation, indicating that people aren’t getting enough work.

The Fed’s Role in the Economic Slowdown

The Fed’s actions have crushed demand, not in the way they intended. Real hourly compensation remains near zero, meaning inflation will eventually come down. As consumers run out of money, the Fed may follow the ECB’s example and cut rates. Unit labor costs are plummeting, and the Fed should be cutting rates, but they think inflation is still a problem. When inflation falls, the Fed will aggressively cut rates, finding themselves on the wrong side of the curve.

Conclusion

The current state of the US labor market and economy is precarious, with rising unemployment claims, stagnant wages, and increasing competition from undocumented workers. Walmart’s efforts to introduce training programs are a step in the right direction, but they may not be sufficient to address the underlying issues. The Federal Reserve’s actions to curb inflation may inadvertently push the economy into a recession, further exacerbating the financial struggles of American workers.

To navigate these challenging times, it is crucial to stay informed and proactive. Understanding the broader economic trends and their potential impact on the labor market can help individuals and businesses make better decisions.

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