Economic Slowdown: Walmart, Home Depot, And Other Retailers Sound Distress Call Amid Confusing Economic Condition
The consumer industry is on the verge of a dramatic shift that will have a significant impact on the markets, models, and mechanics of consumer industry companies over the next decade.
One of the primary drivers of this dramatic shift is concern about a global recession and high inflation as interest rates have been aggressively raised in recent months. Every day, the dollar gains strength while becoming scarce in both internal and external markets.
The strong dollar hurts US companies that rely heavily on exporting goods to other countries, but it benefits companies that import goods from other countries because they have to pay less because the dollar is strong.
The strong dollar also helps US consumers buy more, but this is not so simple because the world is slowing down, companies that export goods to the US must pay more to export, and revenue and profits earned in local currencies are worth less in dollars terms, making their products more expensive abroad, reducing demand.
This is exactly what is happening to US companies, which is why companies like Walmart, Home Depot, and others are in a bind and experiencing difficulties.
The real situation in the US economy has already perplexed businesses and consumers, as well as Walmart and Home Depot.
American consumers have kicked off their year 2023 with a high color, but it is getting gloomier with the possibility of looming inflation and recession.
The consumer confidence index was 109 in December of last year and 107 in January of this year, a two-point improvement. This was one of the reasons the market was stabilizing, but it is eroding by the day.
The expectations index fell to 77.8 in January from 83.4 in December, reflecting consumers' six-month outlook for income, business, and labor conditions. According to the available data, a reading of less than 80 often indicates a recession in the coming year.
The present situation index, which measures consumers' perceptions of current business and labor market conditions, increased to 150.9 from 147.4 in the previous month.
Affordable housing is also becoming scarce, driving up rents and making it difficult for average Americans to afford housing.
All of this adds up and piles up like a mountain of problems that are driving consumer companies off the cliff.
Last week, two major retailers issued cautious signals about the health of the American consumer. In a nutshell, Walmart stated that while consumer spending in the United States began the year strong, it expects households to slow throughout the year, resulting in the weak fiscal year 2024 U.S. sales growth of 2 to 2.5 percent. Consumer spending is holding up, according to Home Depot, but the company expects flat sales growth and declining profits this year.
Last Friday's core personal consumption expenditure index was also higher than expected, indicating a difficult road ahead.
The headline inflation increased by 0.6% month on month and 5.4% year on year respectively, compared to 0.2% and 5.3% in December last year.
US Market - Stocks:
The US stock market is on a downward trend. Dow Jones, NASDAQ, and S&P are all falling, and investors are losing money every day following the release of a white paper by former Fed Chairman Frederic Mishkin. It raises the risk of a recession and instills fear in investors.
The SPDR S&P Retail ETF is up 9% year to date, but was down 7% last week, its worst five-day stretch since July 2022. Consumer discretionary stocks had the worst week of any S&P 500 sector, falling nearly 4.5%.
Walmart has been able to maintain sales growth by expanding its grocery business; however, these sales are less profitable than general merchandise categories where consumer spending is leveling off or declining. It is compensating by investing in more efficient operations and expanding its high-margin advertising business through its online unit.
Home Depot anticipates that high home equity will support consumer demand for a time before inflation and interest rate pressures squeeze even harder. Home Depot is declining continuously and it has been losing its profit for 12 straight months.
Home Depot was the Dow's second-worst performer last week, falling nearly 7%; the only Dow stock that performed worse was Intel, which cut its dividend by 65%.
In this environment, the Fed is relentlessly pushing for aggressive interest rate hikes. And, According to them, they will continue to do so until the risk of inflation decreases.
There is now talk of the Fed potentially raising rates by 50 basis points at the next meeting and the "higher for longer" view of where rates will be at the end of the year.
As a result, there is no respite for the global economy because raising interest rates will make importing difficult for import-heavy countries.
According to experts, some other economies, such as Lebanon, will bear the brunt of the default.