Like a celebrity ankle monitor, a stagnant employment picture is placing restrictions on the nation’s overall recovery, an industry economist told attendees at the annual NACS State of the Industry (SOI) Summit.
Convenience-store operators, for the most part, have weathered the difficult times, but they will face continuing challenges regarding core categories, most notably gasoline, as the country’s larger financial situation stalls.
“We’ve been in recovery for three years,” said David Nelson, Finance &Resource Management Consultants(FRMC) Inc., Bellingham, Wash. “In 2009, the recession [was declared] over, but it hasn’t felt like an economic recovery because unemployment is still high.”
The effect on c-stores is palpable. Currently, unemployment stands at 8.3%, compared to 5% in 2005, according to Nelson. He provided research showing that if unemployment improves from 8% down to 7%, cigarette sales improve by 1.11% and sales in other categories excluding cigarettes, beer and alcohol improve 2.35%. (See chart, above.)
Officially, 12.8 million people are unemployed. Of that number, 5.4 million are considered “long-term” unemployed, not having worked for more than 27 weeks. The statistic gets bleaker when considering that an additional 10.4 million individuals are not even included in that figure. That’s because 8.4 million are part-time workers wanting full-time jobs, while the rest are considered “discouraged” workers.
Still, Nelson said the numbers are on a positive trend, citing that the percentage of working-age Americans prior to the recession was 62% to 63%. Current numbers are probably in the 58% to 59% range—“not as high as prior to the recession, but it’s moving in the right direction,” he said.
Citing a Wall Street Journal survey, Nelson said unemployment will dropdown to 6.8% by 2014, which is still aways from the pre-recession low of 5.5% midyear 2008. (See chart, above.)
Foreclosure Blues
Another significant component complicating the nation’s economic recovery is the housing crisis. A big part of the blame for the recession fell on mortgages sold to people who couldn’t afford them, and the collapse of real-estate markets in the United States.
Two-thirds of states have foreclosure rates four times the norm or above, with “normal” being foreclosure averages that occurred in the years from 1980 to 2000.(See chart on p. 38.) Only three states have achieved normal foreclosure rates. Nelson said that foreclosure activity and how ramifications from the U.S. housing crisis move through the system will influence those elements and may also drag on the country’s recovery.
Regarding home values, Nelson says figures from 1995 through 2005 showed a steep incline, followed by a drastic drop in 2008. Projections put recovery to a fair market value starting in 2015, with prices going above fair market in 2020.
Home prices are projected to gain considerably, inching into the positive figures probably by this year and moving to a possible 7.4% increase in 2015—still a far cry from double-digit increases experienced in 2004 and 2005.
And while housing starts have yet to hit pre-recession numbers, those numbers are beginning to perk up as well, he said.
“What does that mean for c-stores?”Nelson asked, saying it’s good news.“Construction workers are hard-core c-store shoppers, often visiting two to three times a day.”
Monetary Policy
Yet another factor that could influence the rate of economic recovery is government action. The Federal Reserve took decisive action in the latter part of the decade, twice purchasing substantial amounts of government bonds and other financial assets. Called “quantitative easing” or QE1 and QE2, the actions were meant to increase the money supply when interest rates were already 0% or close.
While potentially stimulating the economy, the moves pose the threat of inflation, Nelson said. And many are concerned that a QE3 is a significant possibility. He presented poll numbers that suggest that people following Fed moves don’t believe a QE3 will occur(65%) and most emphatically advise against it (85%).
Overall, he said short-term interstates will probably remain in the range of 0% to 0.25% through 2013, with “headline” inflation hovering at a modest 2.2%.
Other Factors
Other factors in the nation’s economic recovery include consumer spending, people’s debt-to-income ratios and global influences.
Regarding consumer spending, Nelson said that while numbers are promising, the return of consumer spending is “slower than in previous recessions.”Nelson said debt-to-income ratios, or the amount of debt consumers have as a percent of income, is coming down, which is a sign that people are paying on credit cards and reducing personal debt. He says foreclosures are also a part of the picture.
Globally, oil prices are going to have an effect on motoring consumers, with the severity depending on how quickly gasoline prices rise this spring. He cited research correlating the speed of rising gas prices to the effect on demand. Using additional Wall Street Journalresearch, Nelson said the current price of oil—in the $100-per-barrel range in early spring—will probably not affect the pace of economic recovery; the skids will come when oil moves into the range of $130 to $140.
Fuel demand numbers differ, with Department of Energy “adjusted” figures saying demand dropped by 4% from 2010 to 2011. NACS numbers from its SOI resources recorded no demand change at participating corporate company-ops in that time period.
For c-store operators, the effects of rising fuel prices are numerous:
- Higher credit-card fees.
- Increased fuel theft.
- Customer inconvenience due to fund holds and preauthorization limits on fuel.
- Increased inventory holding costs, lowering available credit.
- Increased consumer sensitivity and margin compression.
- Declining volumes and less discretionary spending..
Overall, the recession has had a lasting impact, robbing the nation of a potential $963 billion in gross domestic product(GDP), Nelson said. The nation’s current GDP growth of 2.2% to 2.4% does not match what will be necessary to recoup the almost $1 trillion lost.
Comparing post-recessionary periods from years past, Nelson showed conference attendees that this recovery is more prolonged that most. “Even three years after the recession, job recovery has been really slow,” he said. “So we don’t have a robust economy.”
A Bifurcation
Essentially, the economy is moving from a largely middleclass base to a split-camp scenario: At one end are the exceedingly wealthy, and at the other end are the lower class. It’s a scenario that’s been building since prior to the recession. Here’s statistics from 1979 to 2007:
- During this time period, the top 1% of the population with the nation’s highest incomes showed an increases on average of after-tax income of 275%.
- For the next 20%, the average household income grew 65%.
- For the 60% in the middle, growth was just under 40%.
- For the bottom 20%, average, after-tax income was 18%.
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