Walmart Pay Cuts For New Hires Indicates Economic Downturn Has Arrived

The latest jobs reports (read: here & here) have revealed the US labor market, while still adding jobs, shows signs of cooling. Walmart, the nation’s largest private employer, has noticed the slowdown and is cutting pay for new store hires.

According to documents reviewed by The Wall Street Journal, the retailer introduced a new payment structure for new employees that went into effect in mid-July. Anyone who is hired today receives less pay than someone who was hired three months ago.

The new payment structure means new hires who join the digital or stocking departments will make about a dollar an hour less than they would have if hired earlier this year.

“This will allow for better staffing throughout the store,” said one of the documents. Walmart has already raised hourly pay for 50,000 workers because their pay was below the new minimum.

On Thursday, a Walmart spokeswoman confirmed the pay structure change, adding it allows new workers to learn and improve on skills to climb the company ladder.

News of Walmart’s pay reduction for new hires comes as the labor market appears to be cracking:

More importantly, David Bassuk, the global head of retail at AlixPartners consulting firm, noted that retailers are scrambling to cut costs ahead of a period of consumer weakness.

“This is one example of many where retailers are doing everything they can to try to head off increasing costs,” Bassuk said.

Walmart’s moves “signal the industry where things are either headed or what they should be considering,” he said. “I think we are starting to see the pendulum start to swing back to a different set of priorities.”

The retailer sees precisely what we’ve explained to readers in recent months: low/mid-tier consumers are tapped out after two years of negative real wages that forced them to deplete savings while boosting credit card spending to make ends meet. Now, student loan payments are kicking in and will serve as an even larger economic headwind.

Goldman’s take on all of this is that the wage-price spiral is over:

It is worth noting that the market ticked higher as soon as the WMT story hit about looking to lower labor costs. Keep in mind, they were among the very first large companies to make major wage investment announcements years ago so this does feel like a notable story. Even if not an immediate needle mover to numbers, it is likely to be a driver for sentiment given the market’s large focus on CPI. “Walmart is paying some new store workers less than it would have three months ago, a sign that employers are seeking to cut labor costs as the once-hot market for hourly staff cools.” This is the first story of this kind we have seen. Also, they are the keynote speaker on day 1 of our retail conference next Tuesday, the 12th.

In a recent earnings call, Walmart’s CFO voiced concerns about “uncertainty in the economy during the rest of the year.” The decision to reduce pay suggests that America’s largest employer is already feeling downward pressure in the economy.

Source: ZeroHedge

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