What does Target’s shrinking workforce tell us about the American economy?

Back in December, I wrote:

To some extent, then, I see the American economy going into the new year as a race between two factors: one is the squeeze on American’s spending which will drive economic activity down and the other is loosening credit conditions as inflation falls and the Fed cuts rates which will, in the short term at least, drive economic activity up. 

News from Target suggests that the first of these might be biting. In a report titled “Target’s employee count is down 25,000 from a year ago,” the Star Tribune reports:

In its latest annual report, the Minneapolis-based retailer disclosed that it had about 415,000 full-time, part-time and seasonal workers as of Feb. 3. That is a nearly 6% decline from the 440,000 employees it reported around the same time a year ago.

The shrinking headcount is especially notable because it comes during a time in which one might have expected Target’s number of workers to grow because of an additional eight stores across the chain. Target opened 21 stores and closed 13 in the past year. It has a total of about 1,950 stores.

Neil Saunders, managing director of GlobalData, said Target had discussed eliminating temporary and part-time positions during the holidays in favor of giving more hours to existing workers. But he wondered if the retailer has been paring back on store workers more generally to help improve profits at a time of lower sales.

“I think they have been trimming because one of the things they’ve been very conscious about is the sales numbers are not great,” Saunders said. “So they want to ensure that the profit numbers look good.”

He said retailers in general seem to be belt-tightening at a time when sales growth is more challenging.

Target’s comparable sales have declined for three consecutive quarters, its first sales dip in several years as consumers have pulled back on some purchases amid higher prices for basic items. Executives said this month that they expect sales to fall again this spring quarter, then rebound later in the year.

This fits the idea of higher inflation leading to lower real incomes leading to lower real spending leading to reduced production leading to higher unemployment which, I have suggested before, the first of those two factors mentioned at the start. Keep watching the employment numbers.