Better Than Expected Payroll Numbers Could Benefit These Retailers

The stellar payroll numbers and a lower than expected unemployment rate that were announced today boosted the confidence in the U.S. economy. 243,000 new non-farm payrolls were added in January and the unemployment fell to the lowest level in almost three years. The equity markets greeted this new data with optimism, as Dow is currently +1.18%, S&P +1.35%, and Nasdaq +1.64%. In addition, the Consumer Discretionary SPDR ETF (NYSE: XLY) is trading nearly 2% higher, as traders are expecting the better jobs data to translate into a higher purchasing power by the U.S. consumers. Unfortunately, these expectations may be prove to wrong. The Employment Situation Summary by Bureau of Labor Statistics states that: “In January, average hourly earnings for all employees on private nonfarm payrolls rose by 4 cents, or 0.2 percent, to $23.29. Over the past 12 months, average hourly earnings have increased by 1.9 percent. In January, average hourly earnings of private-sector production and nonsupervisory employees edged up by 2 cents, or 0.1 percent, to $19.62.” It is clear that this tiny increase in earnings combined with approximately 2% inflation rate does not leave much room for extra spending. Hence, most retailers may not necessarily see the benefits of the improved payroll data.The larger number of consumers with a monthly income might, however, benefit the low-end retailers that offer affordable products. For example, Wal-Mart (NYSE: WMT), The TJX Companies (NYSE: TJX), Dollar General Corp (NYSE: DG), and Family Dollar Stores, (NYSE: FDO) could be good options to play the increase in non-farm payrolls and lower unemployment rate. You can follow me on Twitter @TuomoKallio