The retail crisis could lead to the next U.S. recession

Amazon and their growing market power has resulted in growing struggles for in-store retailers. This struggle for in-store retailers has opened the eyes of many economists as they begin to voice concerns of the economy and its recent deceivingly great numbers. Should Americans be worried? It is too early to tell, but trends suggests they should be.

Nearly a month ago, Amazon acquired Whole Foods for a modest $13.7 billion (about $42/share) which added yet another market to Amazon’s already diverse portfolio of services to consumers. Now able to deliver fresh food to homes, the partnership between these two companies will likely increase the market power of an already immensely powerful Amazon and could in fact lead to a domination by Amazon in the food market in the coming years. This is certainly all well and good for Amazon, but smaller food markets and retail stores will be taking yet another massive blow brought on by Amazon.

Pundits are labeling it the “Retail Apocalypse”, a recent string of poor numbers by retail companies due to the growing popularity of Amazon. The past four months have seen online sellers like Amazon add nearly 13,000 jobs whereas in-store retailers have cut almost 93,000 jobs. Furthermore, department stores have cut almost 20,000 job in that same four-month timetable. The retail industry is heading in a poor direction and although its impact is small, it is showing a significant trend that could suggest the U.S. economy is on the verge of another recession.

What should worry policymakers, consumers, and you is not that the retail job market is not looking great, but the U.S. aggregate job market is deceivingly looking great.

Unemployment is low, but for all the wrong reasons. The participation rate is on a steady decline (-0.2% for consecutive months) and this indicates that more Americans are giving up looking for jobs, which can deceivingly make the unemployment numbers look better than they actually are. Since 2010, the participation rate has declined nearly 3% (about 9 million people). Coupled with the beginning of retirement for many baby-boomers, these numbers could spell trouble for the U.S. economy in the near future.

Another deception that the economy is doing well is the fact that the number of jobs added is always reported, yet the labor force number is never mentioned in the news. In May, the labor force shrank by more than 400,000 people because of retiring baby-boomers, yet this secession will not be a factor in unemployment because of the way the government calculates the rate (unemployed and looking for work are counted, as opposed to unemployed and not looking). The economy added 138,000 jobs in May, but 400,000 people left the economy due to retiring. That is not is a good indication for an economy.

It is too early to tell whether or not these factors could result in a recession, but the trend suggests so. The economic downturn could be the first big economic test for President Trump, and it will be interesting to see how he can resolve it.