The retail giant forecasts weaker sales
, thoughtful.” That is how Walmart’s boss, Doug McMillon, described consumers on the American retail giant’s quarterly earnings call on February 21st. That may be so. What they are not, at least in aggregate, is careful, thrifty or frugal. Last year consumer spending increased even as real disposable income declined by more than 6%.
Other retailers tell a similar story, more poignantly. Home Depot, which also reported its results on February 21st, disclosed its seventh successive year-on-year decline in transaction volumes—and this quarter, for the first time, it was not offset by growth in the average size of transactions. The company’s share price fell by more than 7% on the news.
Following a pandemic-era blow-out, investors expect retailers’ margins to narrow. Although the worst labour shortages have subsided, wages remain high. In the case of Walmart and Home Depot, they are rising. In January Walmart announced pay increases which will raise its average hourly wage to more than $17.50., a bank, estimates that such moves will cost the company around $1bn a year. Home Depot said that it would spend an extra $1bn on higher hourly wages for workers.
A bigger worry is the potential drop-off in consumer demand. The tailwind from strong household balance-sheets, fortified by pandemic-induced saving and government handouts, will not blow for ever. According to Goldman Sachs, another bank, households have spent a third of their excess savings and will have spent another third by the end of 2023.
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