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Wal-Mart Impacted By Minimum Wage Increase

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Wal-Mart Impacted By Minimum Wage Increase

Dec 25 2014, 09.10am GMT




STOCKS    stocks

According to an internal memo which was reviewed by Reuters, Wal-Mart Stores Inc. (N:WMT) will need to adjust their base salaries in line with the recent minimum wage increases in the U.S. This increase will impact almost a third of Wal-Mart’s 1,434 stores across the country. The minimum wage hike requirements will come into effect on the 1st of January 2015 and it will apply to 21 states.

In response, Brooke Buchanan, the Wal-Mart spokeswoman stated that the company is doing all the necessary to ensure that their stores are complying with the law in all 21 states. As the largest U.S. private employer, Wal-Mart employs over 1.3 million workers which means that this new minimum wage legislation will have a big impact on the company. To date, the company is well known for being able to offer consumers low prices and as a result, Wal-Mart operates on tight margins while keeping costs low. Despite offering low prices on goods, Wal-Mart has not been successful in growing their sales in the last few years with many of the lower income citizens losing their jobs in the financial crisis.

The three lowest paying positions at Wal-Mart include cart pushers, maintenance and cashiers and the company will now try to narrow the gap between the minimum wage earners and those in more skilled positions such as department supervisors. Last month, Wal-Mart stated that the company’s investment in health care as well as increased salaries, added 3.5% to the company’s operating costs in the last quarter. Despite this, Wal-Mart has said that they are not planning to reduce hours or to cut staff at this stage in order to reduce costs. Meanwhile, the recent change in state minimum wages will also impact some of Wal-Mart’s rivals such as McDonald's Corp (N:MCD) and Target Corp (N:TGT). Wal-Mart is currently trading at $86.43 per share on the New York Stock Exchange.

Indices    Indices

On Wednesday, in a short trading session, U.S. stocks closed relatively flat. While the Dow Jones Industrial Average (DJIA) and the S&P 500 index (SPX) both touched intraday records, the Dow managed to hold on to this advance closing at a record high for the 37th time this year. Trading volume was light during the three hour trading session and according to BATS exchange data, only two-an-a-half billion shares were traded on all U.S. platforms. This number is well below the month-to-date average of 7.66 billion. Markets are closed today for the Christmas holidays and will reopen on Friday.

Over the last few weeks, we have seen equities rising and the Dow Jones even closed above the 18,000 mark on Tuesday for the very first time. Over the last 6 trading sessions, the SPX has increased by 5.5% and has already closed at record highs 51 times this year. This marks the fourth best performance in the index’s history and the most record closes since 1995. According to analysts, this hot streak in equities has come in response to improving economic data as well as assurances by the Federal Reserve that they will be ‘patient’ regarding interest rate hikes in the new year. Meanwhile, the jobless claims data out on Wednesday also gave the markets a boost. Data showed that initial claims for state unemployment benefits declined by 9,000 to a seasonally adjusted 280,000. This was below forecasts of 290,000 and also marks the 4th straight week of declines.

Currencies    Currencies

On Wednesday, the U.S. dollar (USD) traded largely lower against other major currencies in pre-Christmas holiday trading. This decline came despite the fact that upbeat economic data out of the U.S. pushed the greenback higher to a two-week high overnight. The WSJ Dollar Index which measures the USD against a basket of other major currencies, declined to 82.73, down 0.18%. The U.S. Dollar Index also edged lower by 0.16% to 89.96. In currency trading, the USD/JPY currency pair traded at ¥120.45 while the greenback also traded lower against the euro with EUR/USD up 0.22% at $1.2199. On Tuesday, the EUR/USD traded at $1.2171. Against the British pound (GBP), the GBP/USD traded flat at $1.55. According to analysts, while currency trading is likely to be subdued over the holiday period, this could make the U.S. dollar vulnerable as a result of profit taking ahead of the year end. According to J.P. Morgan, the greenback is known to show volatility gradually after the festive season while we might even see movements before the end of the new year as well as in early 2015.

Commodities    Commodities

On Wednesday, crude-oil futures settled lower in response to increased crude inventories in the U.S. As a result, previous gains in the commodity were erased. Light, sweet crude futures for February delivery fell 2.2%, or $1.28, to $55.84 a barrel on the NYMEX. This contract has now declined by 2.3% this week.

The Energy Information Administration (EIA) in the U.S. reported on Wednesday that the inventories for commercial crude rose from 387.2 million barrels in the previous week to 7.3 million barrels. Analysts were hoping for a decrease of 1.8 million barrels. Also on Tuesday, the American Petroleum Institute reported an increase in supplies and their data revealed that U.S. crude stockpiles had increased by 5.4-million-barrels for the week ending on the 19th of December, 2014. A higher U.S. oil supply has typically weighed on oil prices in the past and as a result of increased oil production in the U.S., we have seen a recent glut in the oil markets which has negatively impacted oil prices globally.

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