An Altogether Different Reality

A post at CNNMoney's Term Sheet blog, "Why Dollar Stores Are Thriving, Even Post-Recession," maintains that there is more to the recent success of the U.S. dollar store industry -- including the big three, Dollar General (DG) , Dollar Tree (DLTR), and Family Dollar (FDO) -- than meeting the needs of cash-strapped consumers.

The optimists better hope that is correct. Because if it isn't, history suggests the continued strength in the group is a sign that Americans are becoming more economically worse off than they were, and that any talk of a "recovery" is sorely misguided.

As the following chart shows, the sector (I've used Family Dollar's share price as a proxy for the group) has loosely tracked the inverse of year-on-year changes in U.S. average hourly earnings over the past 12 or so years, which, given the recent run-up in the stock, would seem to indicate that wage growth -- and, hence, spending power -- is completely stalling out.

So, rather than assuming, as the writer of the Term Sheet post and countless U.S. stock investors do, that the worst is behind us, the reality may be altogether different.

Michael J. Panzner