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Labor market struggles dim consumer spending outlook

The Rochester labor market continued to struggle in October-an ominous sign for consumer spending as the "Black Friday" holiday shopping weekend gets underway.
 
Private-sector employment in the five-county metro area was 0.1 percent (300 jobs) below year-ago levels-in stark contrast to the 2.3 percent national average gain (Figure 1).
 
Local hiring activity has decelerated for three consecutive months, with October’s performance heavily weighted by year-over-year cuts in manufacturing, construction and government payrolls.
 
However, reflecting the sluggish pace of consumer spending, the retail trade and leisure and hospitality sectors also recorded headcount reductions-collectively employing 2,900 fewer workers last month than in October 2013.
 
The close relationship between payroll employment and household spending can be seen in county-level sales tax collection data.
 
Adjusted for inflation, the $618 million in county sales tax revenue collected in the Rochester metro area over the 12-month period ended in September was 0.5 percent less than the comparable year-ago figure (Figure 2).
 
Real sales tax revenue growth has been edging downward since 2011, paralleling the weak pace of local hiring activity.
 
One bit of good news that may help ease pressure on household budgets is the recent decline in gasoline prices, which should free up extra cash for holiday purchases.
 
Nevertheless, given the tough payroll income environment, area merchants will need to be especially resourceful to meet their holiday sales goals.
 
According to a recent statewide poll conducted by Siena College, 85 percent of Upstate New York residents plan to pay for holiday purchases either in cash or as soon as the bill arrives-meaning that weekly wages and household savings will be the major funding source.
 
With consumer spending accounting for two-thirds of GDP, holiday shopping activity will have a significant impact on regional economic momentum heading into 2015. 

Gary Keith is vice president and regional economist at M&T Bank Corp.

11/28/14 (c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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