Morning Commentary
There was a lot of news out last week, but perhaps the biggest news came from Wal-Mart when they lifted the wages for starting employees and other management levels.
Entry-level employees will start out at $9.00 an hour. Next year, employees with six months of skill-based training will see their wages move to $10.00, which is monumental for a company with 1.3 million employees. Immediately, the political debate was joined on whether the left was somehow winning and if it was a smart business decision.
I say it was more about business as workers have been quitting retail jobs in droves, underscored by the 21% leap in December versus the overall businesses without retail. All this time the experts were looking for wages to begin moving higher in areas of special skills. However, retailers are finding it difficult to find the right skills. Keep in mind that the right skills are what used to be commonplace work requirements.
According to the Empire State Manufacturing Survey of April 2014, employers had the most difficulty-finding workers proficient in:
Basic Math Workers Quitting Jobs Dec 2013- Dec 2014 |
|
Overall +11% |
Retail +21% |
http://blog.walmart.com/in-letter-to-associates-walmart-ceo-doug-mcmillon-announces-higher-pay
So, is being a more generous employer important for shareholders? If you take the most loved of discount retailers (Costco) versus the most unloved (Wal-Mart), the answer would seem to be yes, as the former is up more than 150% in the last few years versus 55% for the latter. In fact, you have to go back to 1990 to find them equal in return 1400%.
WMT vs. COST
Of course, there are other factors and some would say Sam's Club is a more apples to apples comparison with Costco. However, the news will impact all of the retail companies, and perhaps fast food companies as well. But from what I can see, this is a business decision based on the ability to hike wages; (the company posted its best same-store sales in years), and the need to find better workers, even in the would-be lower skills area. Maybe at $9 an hour, the $10-an-hour people will come to work on time, be courteous, and see the upside to being on the ladder of success.
In the meantime, the question whether this moves the needle for the Fed remains to be seen. However, I don't think it's enough. The increases probably don't trigger the textbook inflation, but part and parcel will make it more difficult for the Fed to hold pat. I can't wait for the Fed to begin raising rates, it will be an exciting time, and for those that sell on the news it will help create opportunities as market value makes it harder to find value.
Today’s Session
The Dow Jones Industrial Average and the S&P 500 are poised to open lower this morning after closing out last week at record levels. One merger in biotechnology is lifting the NASDAQ, but it’s not enough to move the needle ahead of a week focused on housing, the Fed and retail.
The focus is on NASDAQ which acts better into the open but we are not forcing anything yet this morning.
Earnings were light this morning, but below are a handful of notable companies that reported this morning:
Date |
Company |
EPS |
Cons. |
Revenue ($M) |
EPS Guidance |
EPS Consensus |
23-Feb |
CTB |
0.45 |
0.64 |
$820 |
- |
FY15 2.96 |
23-Feb |
DISH |
0.89 |
0.43 |
$3,640 |
- |
FY15 1.75 |
23-Feb |
VRX |
2.58 |
2.56 |
$2,280 |
Q1 2015 2.30 < |
Q1 2015 2 |
Comments |
I agree with Charles' commentary. Let me add one more thought. At my last place of employment Human Resources estimated it cost the Co. $10,000 to bring a new person on board. So this is a good business decision and great pr. Mike T on 2/23/2015 8:38:30 AM |
It is a privilege to work in and for a Company and not a right. The should be minimum productivity and employee standards that must be maintained along with reasonable "incentives" for increased productivity that rewards the "bees" and not the "slackers"! Howard Applebaum on 2/23/2015 9:56:44 AM |
Nothing on this earth will change the climate at Walmart until they become unionized. The unions could not care less about the employees there except for union dues. tom wayne on 2/23/2015 9:59:44 AM |
Wages should be at lear $15, now raise $ 1.- @ Year. But the GREEDE will call Socialism. DONT they realize they make the $ from the bottom scratcher. IT would be less Wellfare. Josef Brunner on 2/23/2015 11:39:37 AM |
I think WalMart is doing exactly what Warren Buffet did when he advocated paying higher taxes. They are just trying to be proactive as to get ahead of the curve and not have our "crazy" government impose deeper "issues" on them. bart harrison on 2/23/2015 11:50:05 AM |
Not the first time WalMart has made pc 'business decisions'. They are fools to think anything short of unionization will satisfy critics. Unfortunately they have to compete with government programs for low skilled workers so they are forced to pay more. As in medicine and education, just another example of government subsidies perverting market forces and leading to higher costs. Al on 2/23/2015 12:34:14 PM |
Yes, the company will benefit as well as the shareholders. John Friesen on 2/23/2015 1:44:42 PM |
As someone who has disliked shopping at Walmart because of the lack of service and absence of a friendliness on the part of their employees I welcome the pay increase.However, I think that their emphasis on additional employee training should also prove beneficial. Also their stores are not clean or neat and need a lot of work. Otherwise they are mediocre. Harold Sader on 2/23/2015 2:55:24 PM |
When I started working 64 years ago, minimum wage was $0.625 an hour. At $9 an hour today, that's a rate of growth of 4.25% a year -- not much different than long term inflation. I find it hard to get too excited about that. It's what people do from there that counts. Two years and 2 jobs later, I was making 6 times that much and raising a family. That's where real economic growth comes from. Minimum wage is just the first step on the ladder. If you're still stuck there years later, the real problem may be you. Dennis Howard on 2/23/2015 10:31:57 PM |
I think it will help them. It also sticks a thumb in the union's eye and tells the gov't to take a hike It will bring loyalty and a better class of employee alex topar on 2/25/2015 10:45:34 AM |
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