MONEY inflation

Why You Should Hate Low Inflation

two balloons tied to one another
Robert Warren—Getty Images

The Federal Reserve hates near-deflation inflation too. Which is why the Fed hinted that the pace of interest rate hikes will be more gradual than expected.

You may think that you like abnormally low, bottom-of-the-barrel, near-non-existent inflation, but you don’t. Or at least you shouldn’t.

The first thing you have to understand is that inflation—or the general rise in the price of basic goods and services—has been historically low since the financial crisis. Some folks may have a tough time believing that, since the cost of some goods like meat and education, seem to only increase.

Nevertheless, over the last 24 months overall consumer prices have rested at or well below the Federal Reserve’s 2% target. Last month inflation dropped on a year-over-year basis thanks to very cheap oil. If you strip out volatile food and energy prices, inflation only rose at a rate of 1.6%.

So inflation is low. But why is that bad, exactly? Isn’t it a good thing for consumers that prices in general are growing only slightly? Who wants to pay more for things?

In a word: wages. There has been no sustained accelerated income growth for American workers since the Great Recession.

Despite an unprecedented fiscal stimulus effort, despite years of near-zero interest rates, despite three massive rounds of unconventional bond buying to lower long-term interest rates that many economists and politicians wrongly predicted would cause soaring prices, despite a year in which the economy has been adding 200,000 or more jobs a month, there just hasn’t been any meaningful wage growth.

A good metric that illustrates this point is the “employment cost index,” which measures fringe benefits and bonuses in addition to wages. In the last three months of 2014, total compensation grew at rate of 2.3%, or about a full percentage point lower than before the recession. If you look at median hourly wages, you see a similar picture. Workers just haven’t seen meaningful raises in a long time.

fredgraph (2)

This has a harmful effect on the economy. My spending is your income, so if I don’t see more money in my paycheck, chances are neither will you.

The Federal Reserve is clearly concerned about this problem.

The central bank’s most recent economic projections lowered the outlook for core inflation and economic growth in 2015, while simultaneously predicting that the unemployment rate will decline as well.

Which means that the labor market has some more to tighten.

And these worrisome economic indicators are allowing the Fed to be extra cautious about raising rates. “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” the Federal Open Market Committee said in a statement.

If we are in a prolonged period of low-growth, as economists like Paul Krugman and Larry Summers have written, then the Fed should wait until the threat of inflation becomes real before pulling away the punchbowl.

Of course there is a real fear that if you let inflation run, it could quickly get out of hands. Inflation soared by more than 14% in the spring of 1980, while unemployment ran high and the economy ping-ponged between recessions. Then-Fed Chair Paul Volcker dramatically hiked interest rates to tame inflation, which pushed the U.S. into another painful recession just as Janet Yellen was beginning her career as an economist.

The Fed has certainly not rushed to raise interest rates this time, even when the economy blew past certain benchmarks. But there has been a tone that the time is nigh for an interest rate increase despite the lack of inflation. Rates have been very low for a very long time.

Whether it’s this summer or fall or next year, interest rates will eventually rise. (Although as MONEY’s Pat Regnier points out, they won’t rise as much as fast as the Fed originally thought.)

When they do, you should hope that inflation has moved much closer to, or even slightly beyond, the 2% target. The quality of your paycheck may depend on it.

MONEY inflation

3 Signs Inflation May Be Lurking Just Around the Corner

150312_INV_Inflation
Kutay Tanir—Getty Images

While consumer prices haven't been rising yet, several signs point to higher wages in the future. Here's what you should do.

After fits and starts and ups and downs, the American economy is finally looking strong — especially compared to Europe. U.S. gross domestic product grew 2.2% and 5% in the last two quarters of 2014, while the unemployment rate dropped in February to 5.5.%.

Yet inflation and wage growth, which are natural outgrowths of an accelerating economy, haven’t seemed to materialize.

At least not yet.

Despite years of unconventional bond buying and warnings from politicians and economists, consumer prices have actually risen less than the desired rate of the Federal Reserve.

The Consumer Price Index declined 0.7% in January, the steepest drop since 2008, thanks to cheap oil. If you strip out volatile energy and food prices, so-called core inflation only rose 1.6% in January over the past year, well below the Fed’s 2% target.

In fact, prices haven’t hit that Fed target in almost two years. Your paycheck has hardly fared any better.

But lately, there have been signs that show America’s workforce might at long last receive an overdue raise. About 70% of companies have said that wages are beginning to outpace inflation, according to the latest Duke University/CFO Magazine Global Business Outlook Survey. Industries like technology, manufacturing and health care should see wages grow by 3%.

A small business report points to a tighter labor force, as 26% of companies raised compensation (although that includes benefits like health care), and almost half said finding a qualified employee proved difficult.

What’s more, the 10-year break-even inflation rate, which is a gauge of how much prices are expected to rise annually over the next decade based in part on the yield of 10-year Treasury inflation protected securities — has been ticking up lately to about 1.8%, after touching a recent floor of 1.5% in the beginning of the year. The rate, to be fair, is still well below levels seen before oil’s drop.

So is inflation and wage growth finally set to take off?

That’s a question for Federal Reserve Chair Janet Yellen, who has said the Fed will remain “patient” when raising short term interest rates while price growth remains so benign.

This six-year herky-jerky recovery has made fools of many prognosticators, especially those who have shouted loudly that inflation is nigh. “Given that CFOs expect continued strong employment growth, it is surprising that wage pressures are not even great,” says Duke finance professor John Graham. Indeed.

What does this mean for your portfolio?

Well, one option is to add to your Treasury Inflation-Protection Securities (TIPS) holdings, especially short-term TIPS if you’re a conservative investor (though this should still be only a satellite portion of your investments).

TIPS have struggled recently after outperforming equities by 11 percentage points in 2011, and investors have started to put their money elsewhere.

But the best time to get inflation protection is when there’s little fear of rising consumer prices — and when inflation-protected bonds are cheap, like now. For instance, the Vanguard Target Retirement 2015 fund currently allocates about 8% of its portfolio to short-term inflation protection.

TIME stocks

The Average Wall Street Bonus Was $172,860 in 2014

A trader works on the floor of the New York Stock Exchange shortly before the end of the day's trading in New York July 31, 2013
Lucas Jackson—Reuters A trader works on the floor of the New York Stock Exchange shortly before the end of the day's trading in New York July 31, 2013

But that's only a 2% rise on the previous year

Despite falling profits, the average bonus on Wall Street rose to $172,860 last year, according to a report released Wednesday by New York State Comptroller Thomas P. DiNapoli.

That marks a 2% increase from 2013 and is the highest average payout since 2007 — right before the financial crisis.

The bump comes as estimated pre-tax profits fell by 4.5% from $16.7 billion in 2013 to $16 billlion last year.

“The cost of legal settlements related to the 2008 financial crisis continues to be a drag on Wall Street profits, but the securities industry remains profitable and well-compensated even as it adjusts to regulatory changes,” DiNapoli said in a press release.

The New York Office of the State Comptroller, whose main duty is to audit government operations and operate the retirement system, has been tracking the average bonus paid on Wall Street for nearly three decades. When it began recording in 1986, the average payout was $14,120. The highest average bonus was $191,360 in 2006.

After two years of job losses, the industry added 2,300 jobs in 2014 to a total of 167,800 workers.

MONEY

Jobless Claims Surge by Highest Number Since 2013

Unemployment filings jumped by 31,000 last week, taking many economists by surprise.

Initial jobless claims last week increased by the highest amount in roughly two years, according to the latest data from the Department of Labor. The numbers, released Thursday, show those filing for unemployment last week jumped by 31,000 compared with a week earlier, pushing up the total number of individuals reporting to 313,000 from 282,000.

The news comes as unemployment is broadly improving. The U.S. economy added 257,000 jobs in January, continuing a 12-month streak in which employers hired more than 200,000 workers a month. As a result, a sharp rise in jobless claims seemed to take economists by surprise. A Bloomberg survey of 49 economists predicted jobless claims would rise by only 8,000.

However, as the Associated Press notes, more unemployment filings probably isn’t a cause for alarm. Short-term surveys of the employment market can be uneven, and the 4-week moving average showed an increase of just 11,500 jobless claims, significantly less than the week-by-week numbers. Other employment indicators, like wage growth and gross domestic product, have also been increasingly positive, suggesting the job market will continue to broadly improve.

MONEY Walmart

Here’s Walmart’s Long-term Bet

Walmart Neighborhood Market, Camarillo, California
John Crowe—Alamy

Walmart's willingness to spend a little more today to reinvigorate sales growth won't necessarily hurt its long-term cost structure.

In the past few years, retail giant Walmart WAL-MART STORES INC. WMT -0.66% has discovered that sticking to the same old script isn’t working anymore. Prior to the Great Recession, Walmart was clearly a growth company despite its massive size, with a high single-digit annual growth rate. More recently, it has struggled to eke out low-single digit revenue growth.

WMT Revenue (TTM) Chart

Under the leadership of previous CEO Mike Duke, Walmart began to experiment with changes to its business model, such as adding more small-format stores. However, these efforts were still too little to turn the tide.

New CEO Doug McMillon has shown that he will be more aggressive about making investments to restart Walmart’s growth. He is doubling down on existing initiatives to add small-format stores and grow Walmart’s e-commerce presence. Most notably, he is raising pay for half a million employees in a bold bid to improve Walmart’s lagging customer service.

Another weak year

Walmart’s profit growth has stagnated lately. In the recently ended 2015 fiscal year, Walmart’s “underlying” EPS — which excludes unusual gains and losses — was $5.07. That represented a slight decline from Walmart’s fiscal year 2014 underlying EPS of $5.11 and fell short of the company’s original guidance for EPS of $5.10-$5.45.

Fiscal year 2015 was the second straight year of earnings stagnation. In fiscal year 2014, underlying EPS rose 2%, and even that was just a function of share buybacks.

Revenue growth has also been weak in this period, increasing 1.6% in fiscal year 2014 and 2% in fiscal year 2015. Currency fluctuations negatively affected revenue growth by about $5 billion (a little more than 1% of sales) in each year, but the underlying trend is still low single-digit revenue growth.

Going small for growth

Since McMillon took the reins last year, Walmart has accelerated its small-format store strategy. In his first month as CEO, Walmart announced that it planned to open 270-300 small-format stores during fiscal year 2015, up from the original plan of 120-150 small-format store openings that it had presented just a few months earlier.

Walmart ended up opening 233 small-format Neighborhood Markets last year — below its target but still more than 50% ahead of its original goal. In fiscal year 2016, Walmart plans to open another 180-200 Neighborhood Markets.

This initiative looks promising — the relatively small existing base of Neighborhood Markets generated 7.7% comparable store sales growth last quarter. Since the vast majority of the new Neighborhood Markets last year were opened in Q4, they will have a bigger impact on sales growth in the new fiscal year.

Boosting wages

While the Neighborhood Markets represent an important new growth outlet for Walmart, the company still gets the vast majority of its revenue from supercenters, and that will continue to be the case for the foreseeable future.

Poor customer service in these supercenters has contributed to Walmart’s sluggish sales growth. (Walmart ranked at the bottom of the American Customer Satisfaction Index in 2014.) Walmart’s efforts to juice profit growth by cutting costs to the bone in previous years caused it to have fewer and less-motivated employees in stores. This backfired as the company lost sales to dollar stores and other discounters.

Walmart began to reverse its stingy attitude last year by keeping more registers open during the holiday season in order to keep lines short. Walmart announced on its earnings call that it has continued this “Checkout Promise” policy during Q1.

In an even bigger break from the status quo, Walmart announced that it will raise wages for about half a million hourly employees in the U.S. In April, Walmart will raise its entry wage to $9/hour, and by next February all current employees will make at least $10/hour. (New hires may still start at $9, but after completing six months of training, they will move up to $10/hour.)

Department managers and other employees who are making more than $10/hour today will also be eligible for raises under this program. Walmart is also changing its scheduling practices to help employees to get more consistent hours and it is making it easier to use paid sick days.

Lastly, Walmart is creating a training program to help employees move to jobs with more responsibility. It wants to create clear career paths so that entry-level workers understand how they can move up the ranks over time.

How higher pay could help

Raising employee pay could be transformative by re-energizing the Walmart workforce. More engaged employees are likely to provide better customer service, which should draw more customers to Walmart in the long run. Furthermore, if workers feel more “invested” in Walmart, they will be more likely to suggest process improvements that could improve profitability.

Paying higher wages should also allow Walmart to be more selective in its hiring, improving the quality and productivity of its workforce over time. Improving long-term career mobility could also encourage Walmart employees to stick around. Lower employee turnover reduces training costs.

As a side benefit, by paying its employees higher wages, Walmart could also put upward pressure on wages at comparable employers. That would put more money in the hands of Walmart’s core customer demographic.

Even with its planned wage increases, Walmart will still be paying significantly less than one key rival: Costco Wholesale. Whereas Walmart is touting the ability of entry-level workers to eventually move up to positions paying $15/hour or more, the average hourly wage at Costco is more than $20/hour.

This is both a positive and a negative. On the one hand, it means that Walmart probably needs to keep raising wages to attract and retain high-quality employees. (Otherwise, it might lose its best workers to Costco.) On the other hand, Costco’s experience shows that paying good wages is compatible with maintaining a low-cost model.

This will take time

In the long run, Walmart’s strategic initiatives could help it return to faster growth. By opening more Neighborhood Markets, it will be able to tap into a huge market of customers who don’t want to navigate a gigantic Walmart supercenter to pick up a few groceries.

By paying its employees more, Walmart may be able to improve its customer service while also contributing to higher working class incomes more broadly. Both trends could drive better sales growth.

Nevertheless, Walmart investors will have to be very patient. Walmart is projecting another EPS decline for this year, primarily due to the $1 billion cost of raising employee compensation. Since there will be another step-up in wages next February, EPS will probably remain depressed in fiscal year 2017.

Still, if paying more can drive a return to sustainable comparable sales growth, Walmart should be able to gradually leverage the additional costs. (To some extent, the cost headwinds could also be offset by higher employee retention and improving productivity over the next few years.)

As a result, Walmart’s willingness to spend a little more today to reinvigorate sales growth won’t necessarily hurt its long-term cost structure. There can be no assurance of success, but this seems like a much more promising strategy than Walmart’s previous fixation on cost-cutting.

MONEY Social Security

How to Max Out Your Social Security Checks

Understanding how Social Security computes benefits for full-time workers past the age of 60 may make you feel better about working into your later years.

One of the most common misconceptions I hear about Social Security is that it makes no sense to work in your later years—and keep forking over payroll taxes—because your benefits won’t rise.

For full-time workers, this is absolutely not true. Social Security uses very favorable rules for measuring wages for people age 60 and older who are still working. And older workers are a big and growing army: More than 8.2 million persons age 65 or older were in the labor force last month, up from 4.7 million 10 years earlier, according to the U.S. Bureau of Labor Statistics.

Of course, one of the main reasons people are staying on the job is because they need the money. Their retirement prospects may be bleak to boot. So understanding these Social Security rules is more important than ever.

Social Security bases your benefits on the top 35 years of your covered earnings. As used here, “covered” means wages on which you’ve paid FICA (Federal Insurance Contribution Act) taxes. There is an annual cap on wages subject to these taxes, but it goes up each year to reflect the past year’s increase in national wages. In 2015, the cap is $118,500.

Each year, Social Security indexes your wage earnings, adjusting them to reflect the impact of wage inflation. It uses these indexed wage amounts to determine your top 35 years of earnings.

This way, people get fair credit for all of their past earnings years. Otherwise, a 66-year-old who earned most of his wages 30 years ago would receive less in benefits than a 66-year-old whose earnings occurred in more recent years.

Wage indexing stops at age 60. This is a big deal. The reasons aren’t important here—what is important is that your post-60 earnings are not indexed and thus flow directly into your earnings record in their unadjusted, or nominal, form.

Because wages have increased in this country nearly every year since 1950, the odds are very good that someone who keeps working full-time past age 60 will earn enough money to represent a new “top 35 year.”

This is automatically the case for high earners whose wages exceed the annual cap. As the cap rises, so will the amount of their covered earnings, automatically becoming a new top-35 year. But even lower-earning individuals face good odds of having their post-60 earnings become new top-35 years.

When this happens, Social Security will automatically recompute not only your retirement benefits but the benefits of anyone else—a present or former spouse, young children, and even your parents—that are linked to your earnings record. And it will do this for every year in which your unadjusted earnings are large enough to become one of your top 35 earnings years.

Having said this, I share the frustration that many older workers express for continuing to fork over payroll taxes even after they’ve reached their maximum Social Security benefits. Paying something for nothing is no fun, and in this case it’s not right.

My solution, which maybe has just a constituency of me, would be to cut payroll taxes for workers who are at least 70 years old—and to cut them for their employers as well. This will still bring new taxes into Social Security, but it also will recognize the reality that these workers largely have already paid for their Social Security benefits.

Giving their employers a break will also create needed incentives to encourage hiring and retaining older workers. Right now, many employers balk at doing do, citing higher health care and perhaps retraining costs for older employees. Yet the need for this and other “aging America” changes is becoming clearer with each passing day.

Philip Moeller is an expert on retirement, aging, and health, and co-author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY salary

The Real Reason Wal-Mart is Giving Workers a Raise

Walmart exterior
Joe Raedle—Getty Images

Wal-Mart is no altruist on pay.

Wal-Mart WAL-MART STORES INC. WMT -0.66% made big headlines when it announced pay boosts for its lowest-paid employees. Some investors may be appalled by this “altruistic” news, but don’t worry: it makes perfect business sense, and Wal-Mart’s smart to do it.

The Bentonville, Ark.-based megaretailer has made waves by announcing that it’s raising its minimum salary; soon, its lowest paid employees will make $9 per hour and by next year, the level will go up to $10, well above the federally mandated minimum wage of $7.25 per hour.

Some people aren’t jazzed about Wal-Mart’s decision. The stock dropped on the news Thursday, and some analysts have issued downgrades. Those are short-sighted responses, though. Wal-Mart’s doing the smart thing by working on the most controversial element of its business, and the one that makes many consumers believe its low-priced merchandise just isn’t worth the cost to many Americans’ personal bottom lines.

The move is going to cost Wal-Mart about a billion dollars, and Wal-Mart’s CEO Doug McMillon talked up the morale-boosting element of the strategy, as well as the idea of giving employees “opportunity” and a career path. People may feel cynical about his statements, but the spirit there is right on. Employees who are treated well are more engaged, and are more likely to provide a positive customer experience.

Wal-Mart gets a lot more attention for worker strikes than for its customer service, and that’s a problem that’s long overdue for a fix.

Take this job and shove it

As it stands now, Wal-Mart’s rating on job reviews site Glassdoor.com is a dismal 2.8, with only 44% of reviewers willing to recommend working there to a friend. Compare that to Costco (3.9, 80% would recommend to a friend), Whole Foods (3.6, 73% would recommend to a friend), and Starbucks (3.7, 76% would recommend to a friend). We can throw McDonald’s in for good measure, since it often shares the hot seat with Wal-Mart — its rating is 3.0, with just 50% willing to recommend a job there to a pal.

There’s been increasing attention to severe income equality and the fact that many people working for companies like Wal-Mart and McDonald’s MCDONALD'S CORP. MCD -0.7% are making poverty wages (and are reliant on public subsidization, which of course means we all lose). Those in the ivory towers may say the recession’s over, but there are still a lot of people out there who haven’t seen their wages rise much if at all as the economy supposedly “recovered.”

On the other hand, companies like Costco COSTCO WHOLESALE CORPORATION COST 0.27% , Whole Foods Market WHOLE FOODS MARKET INC. WFM -0.42% , and Starbucks STARBUCKS CORPORATION SBUX -0.01% , all treat their employees well — making them anomalies in the modern retail industry. (Starbucks, in fact, began rolling out a round of pay raises to baristas earlier this year.) They haven’t been subject to nearly the same amount of scathing scrutiny on the worker front as Wal-Mart has been.

Even more pointedly, they have managed to do so while being highly profitable, successful companies, and they have done what well-run capitalistic companies should do: they built employee care into their business missions without waiting for a law forcing them to.

Dollars and cents, not heart and soul

There are plenty of pins we can poke into the happy bubble of Wal-Mart’s announcement, not least of which is the fact that we’re still not talking about a heck of a lot of money even with the new wage floors. Wal-Mart’s wages would still leave some subsisting along the poverty line. Many activists have been rallying for what they peg as a more reasonable $15 per hour “living wage.”

Wal-Mart’s also not turning into a big softie. MarketWatch pointed out that the company’s press release not only included the news about the pay increase, but also a one-time $0.05 per share charge related to a “wage and litigation matter.” We all know that Wal-Mart’s been in the hot seat for years, but that is a good reminder that it’s facing dollars and cents risks on many fronts, including in court.

And of course, the specter of the possibility of a federal minimum wage hike hangs over it all as well. The truth is, should the minimum wage increase, companies like Wal-Mart that have already started dealing with it will be in a far better competitive and even financial position than those who haven’t. They — and you, if you’re a shareholder — will have a whole lot of peace of mind as the laggards struggle to adjust their businesses.

Positive reinforcement for positive business

All in all, though, maybe even the most critical among us should probably give Wal-Mart some credit for being on the right track. Business can be a force for positive change, and Wal-Mart’s high-profile move might help catalyze a little more of a voluntary “race to the top” regarding many Americans’ wages instead of the race to the bottom behavior that has been all too common in too many pockets of our economy.

And even the investors who are appalled at Wal-Mart’s doling out raises should think twice. Anyone who cares about capitalism and free markets should have always considered the idea that companies like Wal-Mart and McDonald’s actually weren’t doing any of us any favors by squeezing profits out of people and hardly budging over what the government demanded by law — resulting in a state in which so many citizens’ pay was so pathetically low that they have had to rely on public assistance.

Wal-Mart’s no altruist — it’s doing what it has to do, and it certainly seems like it could do more. Given Wal-Mart’s massive scale, though, this move will hopefully nudge more corporate managements to see the risk of not moving on this front. Not to mention highlighting to corporate American the importance of investing in its own employees. That would be a win for all of us.

TIME Retail

Wal-Mart’s Problems Go Beyond Underpaid Workers

An employee pulls a forklift with display units for DVD movies at a Wal-Mart Stores Inc. location ahead of Black Friday in Los Angeles, Calif. on Nov. 24, 2014.
Bloomberg—Getty Images An employee pulls a forklift with display units for DVD movies at a Wal-Mart Stores Inc. location ahead of Black Friday in Los Angeles, Calif. on Nov. 24, 2014.

The retail giant's customers are less and less satisfied with its services

Wal-Mart’s announcement on Thursday that it would start paying its employees more and training them better, and would invest more heavily in online operations, almost seems like it could have been a reaction to a survey released a day before, ranking the company as “the most hated retailer in America,” as several news outlets have put it.

It wasn’t, of course. Wal-Mart’s plans had clearly been in the works for quite a while. But those plans, announced as the retail giant issued fairly weak quarterly results, address some of the biggest reasons for Wal-Mart’s ranking at the very bottom of the American Customer Satisfaction Index for 2014: poor service; messy or understocked shelves; and higher prices than many consumers expect.

The survey polled 8,700 consumers. It found overall satisfaction with retailers down by 1.4% over last year, mainly due to higher prices—a sudden reversal after three straight years of rising satisfaction. Wal-Mart’s score of 68 (on a scale of 100) was its worst since 2007, and continues a trend. In four of the past five years, it has scored the lowest of all department and discount stores. This year, it scored the lowest among all retailers. Just a decade or so ago, it regularly scored near the top.

On Thursday, Wal-Mart announced it would boost employee pay to a minimum of $9 an hour, which will put Wal-Mart’s lowest salaries 24% above than the $7.25 federal minimum wage. Some 500,000 workers, or about a third of Wal-Mart’s U.S. work force (including at the Sam’s Club warehouse-store chain) will be affected. It will, of course, eat into profits. Wal-Mart said the short-term hit would yield longer-term benefits down the road, as happier, better-trained, longer-tenured employees will translate into more customer traffic. The wage hikes and improved training will cost Wal-Mart about $1 billion this year.

The action will result in average hourly full-time wages at Wal-Mart rising to $13 an hour from below $12 an hour. That’s still below the $15 per hour demanded by pressure groups, some including Wal-Mart workers, that have been seeking pay hikes from big retailers and fast-food chains.

Wal-Mart also pledged to invest more in its e-commerce operations. The ACSI report noted that even as overall satisfaction with retailers fell by 1.7%, satisfaction with online retailers rose by 5.1%, to 82 out of 100.

That was due in part to a dip in satisfaction the previous year due to a spate of delivery problems, particularly during the holiday season. Still, it points to a big problem brick-and-mortar retailers — even those, like Wal-Mart, with substantial investments in e-commerce: the convenience of online shopping is tough to beat. There’s no such thing as a surly employee or a messy shelf. And what you’re looking for is generally in stock.

Hence Amazon’s place at the top of the list, with a score of 86. In the discount and department store category that Wal-Mart belongs to, Nordstrom was tops, also with an 86. Target tied with Kohl’s at No. 3, each scoring an 80.

 

TIME Economy

What’s Really to Blame for Weak Economic Growth

The George Washington statue stands covered in snow near the New York Stock Exchange (NYSE) in New York, U.S. Wind-driven snow whipped through New Yorks streets and piled up in Boston as a fast-moving storm brought near-blizzard conditions to parts of the Northeast, closing roads, grounding flights and shutting schools.
Jin Lee—Bloomberg via Getty Images The George Washington statue stands covered in snow near the New York Stock Exchange

Finance is a cause, not a symptom, of weaker economic growth

After years of hardship, America’s middle class has gotten some positive news in the last few months. The country’s economic recovery is gaining steam, consumer spending is starting to tick up (it grew at more than 4 % last quarter), and even wages have started to improve slightly. This has understandably led some economists and analysts to conclude that the shrinking middle phenomenon is over.

At the risk of being a Cassandra, I’d argue that the factors that are pushing the recovery and working in the favor of the middle class right now—lower oil prices, a stronger dollar, and the end of quantitative easing—are cyclical rather than structural. (QE, Ruchir Sharma rightly points out in The Wall Street Journal, actually increased inequality by boosting the share-owning class more than anyone else.) That means the slight positive trends can change—and eventually, they will.

The piece of economic data I’m most interested in right now is actually a new report from Wallace Turbeville, a former Goldman Sachs banker and a senior fellow at think tank Demos, which looks at the effect of financialization on economic growth and the fate of the working and middle class. Financialization, a topic which I’m admitted biased toward since I’m writing a book about it, is the way in which the markets have come to dominate the economy, rather than serving them.

This includes everything from the size of the financial sector (still at record highs, even after the financial crisis and bailouts), to the way in which the financial markets dictate the moves of non-financial businesses (think “activist” investors and the pressure around quarterly results). The rise of finance since the 1980s has coincided with both the shrinking paycheck of most workers and a lower number of business start-ups and growth-creating innovation.

This topic has been buzzing in academic circles for years, but Turberville, who is aces at distilling complex economic data in a way that the general public can understand, goes some way toward illustrating how the economic and political strength of the financial sector, and financially driven capitalism, has created a weaker than normal recovery. (Indeed, it’s the weakest of the post war era.) His work explains how financialization is the chief underlying force that is keeping growth and wages disproportionately low–offsetting much of the effects of monetary policy as well as any of the temporary boosts to the economy like lower oil or a stronger dollar.

I think this research and what it implies—that finance is a cause, not a symptom of weaker economic growth—is going to have a big impact on the 2016 election discussion. For starters, if you believe that the financial sector and non-productive financial activities on the part of regular businesses—like the $2 trillion overseas cash hoarding we’ve heard so much about—is a cause of economic stagnation, rather than a symptom, that has profound implications for policy.

For example, as Turberville points out, banks and policy makers dealt with the financial crisis by tightening standards on average borrowers (people like you and me, who may still find it tough to get mortgages or refinance). While there were certainly some folks who shouldn’t have been getting loans for houses, keeping the spigots tight on average borrowers, which most economists agree was and is a key reason that the middle class suffered disproportionately in the crisis and Great Recession, doesn’t address the larger issue of the financial sector using capital mainly to enrich itself, via trading and other financial maneuvers, rather than lending to the real economy.

Former British policy maker and banking regular Adair Turner famously said once that he believed only about 15 % of the money that followed through the financial sector went back into the real economy to enrich average people. The rest of it merely stayed at the top, making the rich richer, and slowing economic growth. This Demos paper provides some strong evidence that despite the cyclical improvements in the economy, we’ve still got some serious underlying dysfunction in our economy that is creating an hourglass shaped world in which the fruits of the recovery aren’t being shared equally, and that inequality itself stymies growth.

MONEY Jobs

Employers Hired 257,000 Workers in January

150206_INV_Wage_1
Datacraft Co Ltd/Getty Images

The economic picture continues to mend, but workers still looking for better wages.

The U.S. economy added 257,000 jobs in January, the 12th consecutive month employers hired more than 200,000 workers. Meanwhile, the unemployment rate rose slightly to 5.7%.

Employers also added more employees in the end of 2014 than originally thought. The Labor Department revised November’s employment change to 423,000, compared to 353,000, and December’s to 329,000, from 252,000.

The positive monthly employment report is another sign of a building economic recovery. The four-week moving average initial jobless claims recently fell by 6,500 to 292,750 The employment cost index, which measures salary and benefits, increased by 2.3% in the last three months of 2014. And the gross domestic product grew by 2.6% in the last quarter of 2014 after climbing by 5%. This good news, along with cheap energy prices, has also pushed up economic confidence.

The economy still is not back to a pre-2008 definition of normal, however. The headline unemployment rate measures only people who are looking for work. Since the post-crisis recession, however, many people dropped out of the work force, and they have been slow to come back in. Today’s report shows the labor-force participation rate at 62.9%, a marginal increase from a month ago, but still in line with a long-term decline. The rate is five points lower than it was at the turn of the century.

Another sign that the job market recovery remains soft: Average hourly wages in January were only up 2.2% compared to a year earlier. (While that’s an improvement over last month, wages grew around 4% per year prior to the Great Recession.) Long-term unemployment is also still at elevated levels.

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Modest wage growth helps to explain why inflation has remained low, even after stripping out the effect of falling prices at the gas pump. Core inflation, which strips away volatile energy and food prices, was up 1.6% year-over-year in December. That’s well below the 2% the Federal Reserve says it is targeting in deciding whether or not to raise key interest rates.

The Fed has been holding short-term rates near zero since the crisis, and is widely expected to begin raising rates this year as the economy improves. But they’ll have to weigh the encouraging signs from the new unemployment numbers against continued low inflation and wage growth, as well as the mounting economic troubles in Europe.

Sam Bullard, a senior economist at Wells Fargo Securities, shares the Fed’s belief that the labor market and economy are repairing, and thinks more hiring will push down the unemployment rate in the months to come, which will result in more money in worker’s paychecks. Eventually.

“Overall, we’re looking at an economy that’s improving,” says Bullard. “The one missing piece is a pickup in wage growth.”

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