Center for American Progress

RELEASE: Unequal Wage Growth Has Hurt Sales for American Retailers, New CAP Report Reveals
Press Release

RELEASE: Unequal Wage Growth Has Hurt Sales for American Retailers, New CAP Report Reveals

Washington, D.C. — New figures released today by the U.S. Census’ Advance Monthly Retail Trade Report show the retail industry continues to struggle even in the face of dropping unemployment and job growth across many sectors. A new report released today by the Center for American Progress shows that current retail sales per person sit 14 percent below their pre-Great Recession trend, costing retailers $51 billion in February alone.

CAP’s report shows that consumption growth has been slow because income growth has gone primarily to high-income earners: In the recovery, 76 percent of income growth went to the top 1 percent of households, while middle-class incomes have been largely flat in recent years. CAP’s report takes a closer look at the hourglass retail recovery, which has resulted in strong growth for discount department and dollar stores and luxury retailers, while retailers aimed at middle-income consumers have suffered. The analysis highlights that sales growth at the top cannot make up for lackluster sales growth at the bottom because wealthy earners save too much money: Between 2010 and 2012, the top 1 percent of earners saved more than 35 percent of their income, while the bottom 90 percent saved nothing.

“Slow wage growth drives the feeble sales growth faced by the retailers that serve middle-class Americans,” said Brendan V. Duke, policy analyst with CAP’s Middle-Out Economics project. “We need a policy agenda—from progressive tax reform to student-loan refinancing to fair labor standards—that will boost the disposable incomes of middle-class Americans. Only then will we see a full recovery throughout the retail sector.”

The report also uses an informal calculation to show how equal income growth between 2009 and 2011 could have resulted in $45 billion more in total real consumption in 2011, which could have significantly boosted the bottom lines of the retail sector and sped up the sector’s recovery. Over this time frame, consumption growth would have been 11 percent higher than actual consumer spending growth had income growth been closer to being equal. The analysis ends in 2011 because that is the last year for which the Congressional Budget Office, or CBO, provides incomes after taxes.

The analysis concludes that the retail sector as a whole cannot recover if middle-class incomes do not recover because the middle class spends a higher percentage of their incomes than the rich, and the rich can’t make up for declining middle-class spending. CAP urges that progressive tax reform, student-loan refinancing, and fair labor standards—including a higher minimum wage—would help boost the disposable incomes of middle-class Americans. Recent actions by some retailers to raise wages unilaterally will help boost retail sales but are no substitute for public policy that puts money into workers’ pockets.

CAP’s analysis is a follow up to a November 2014 CAP report that gathered new evidence showing that top U.S. retailers are deeply concerned that stagnant wage growth and middle-class weakness are holding the economy back. That report showed that 88 percent of the top 100 U.S. retailers cite weak consumer spending as a risk factor to their stock price while 68 percent cite falling or flat incomes as risks. Those findings support policies aimed at strengthening the middle class, including raising the minimum wage, which would benefit the entire retail sector by fueling more consumer spending.

Click here to read “The Rich Can’t Save Retail: Why the Retail Industry Needs a Middle-Out Agenda” by Brendan V. Duke.

For more information or to speak with an expert, contact Allison Preiss at [email protected] or 202.478.6331.