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Walmart, the largest retailer in the United States, recently announced its quarterly earnings report. The company reported stronger-than-expected growth in sales and profit, indicating that consumer spending, which is a key driver of the U.S. economy, remains resilient. This news comes after other major retailers like Home Depot, Target, and TJX (owner of T.J. Maxx and Marshalls) also reported their financial results.
While Home Depot and Target experienced declines in their latest quarterly sales, the off-price retailers owned by TJX reported a bigger-than-expected rise in sales. TJX also revised its forecast for the full year higher, similar to Walmart.
These earnings reports provide insights into consumer purchasing habits in the face of persistent inflation. Consumers are shifting their spending from goods like furniture and electronics to services such as travel, dining out, and going to the movies. Walmart, however, has benefited from rising prices as it attracted higher-earning customers with its more affordable groceries and essential products. This shift in consumer demographics has given Walmart an opportunity to increase sales in discretionary categories.
Retail analyst David Silverman from Fitch Ratings noted that consumer health has remained robust, and while there has been an increase in spending on services, consumers are still spending on goods, particularly during the summer.
Walmart's second-quarter comparable sales rose more than 6 percent compared to the previous year, surpassing Wall Street's expectations. The company specifically highlighted strong grocery sales, but there was a slight decrease in spending on general merchandise.
Despite economic challenges such as inflation and the restart of student loan payments, Walmart remains confident in its ability to attract more shoppers. In the second quarter, the company reported a revenue increase of nearly 6 percent and expects sales to grow between 4 and 4.5 percent for the full year. Walmart's management emphasized that consumers are becoming more discerning about their spending, focusing on priorities and investing in the things that matter most to them.
Interestingly, shoppers at Walmart are showing a preference for private-label brands, groceries, and meal options for eating at home. Foot traffic and average spending per trip also increased at Walmart's U.S. stores. Additionally, e-commerce sales experienced a significant 24 percent rise. Based on these positive trends, Walmart raised its growth forecasts for the full year for the second consecutive quarter.
Executives across various retailers have observed that consumers are cautious but still willing to spend. High inflation, interest rates, and economic uncertainty, along with the end of pandemic stimulus measures, have strained customers' budgets. As a result, they have been more selective with discretionary and seasonal spending while responding well to promotional activities.
However, consumer spending has remained relatively strong due to a resilient labor market and rising wages. July's retail sales increased by 3.2 percent compared to the previous year, surpassing economists' expectations. Promotions around Amazon Prime Day further boosted sales in July. Ted Decker, Home Depot's CEO, expressed confidence in the health of the consumer, emphasizing that fears of a severe recession have largely subsided.
Nevertheless, industry experts anticipate that the resumption of student loan repayments in October could impact consumer spending negatively. The strained budgets of millions of households will face additional pressure. Target's CFO, Michael Fiddelke, expressed caution in planning for the future against this backdrop.
As the back-to-school season concludes, retailers and analysts will closely monitor the crucial holiday shopping season to assess the overall well-being of American consumers. The rollout of seasonal products, such as lanterns, ornaments, and artificial Christmas trees, will provide further insights. Walmart's CEO, Mr. McMillon, noted that a strong back-to-school season typically bodes well for Halloween and Christmas sales.
Mortgage rates jumped to their highest level in more than two decades, making homeownership even less affordable for many would-be buyers.
The average interest rate on a 30-year, fixed-rate home loan climbed to 7.09% this week, according to mortgage giant Freddie Mac. That's the highest it's been since April 2002 and comes after the Federal Reserve has raised interest rates aggressively in a bid to fight inflation.
Mortgage rates have more than doubled in the last two years, sharply raising the cost of a typical home loan. The monthly payment on a $350,000 house today, assuming a 20% down payment, would be $1,880, compared to $1,159 in 2021, when interest rates were below 3%.
"A lot of buyers have been priced out," said Robert Dietz, chief economist of the National Association of Home Builders. "If you don't have access to the bank of Mom and Dad to get that down payment, it's very challenging."
Rising interest rates not only make it harder for first-time buyers to become homeowners. They also discourage people who already own homes from trading up.
"If you're a homeowner who's got a 2% or 3% mortgage, you're not in a hurry to put your home up for sale because that would require a higher mortgage rate," Dietz said. "So resale inventory is about half of what it should be."
Chief economist Lawrence Yun of the National Association of Realtors agreed.
"There are simply not enough homes for sale," Yun said in a statement describing the sluggish pace of home sales in June. "Fewer Americans were on the move despite the usual life-changing circumstances."
Sales of existing homes in June were down 18.9% from a year ago.
Mortgage rates are closely tied to the 10-year Treasury yield, which has also been climbing recently on the expectation that the Federal Reserve may have to keep interest rates higher for longer to bring inflation under control.
The 10-year yield reached 4.3% on Thursday, a day after the Fed released minutes from its most recent meeting.
Earlier this summer, the Teamsters union reached a tentative contract agreement with UPS, potentially enabling employees to earn up to $170,000 annually in pay and benefits within five years. This substantial compensation package has garnered attention and sparked some discontent among tech workers, who expressed their dissatisfaction on anonymous message boards like Blind. One individual referred to the UPS deal as "disappointing" and "sucky," arguing that the engineers responsible for creating UPS's trucks hold greater societal importance. Nevertheless, perhaps these tech workers should redirect their resentment towards highly compensated government employees who work considerably fewer days. Members of Congress, for instance, currently earn a minimum annual salary of $174,000 (excluding generous benefits) as of December 2022. According to Ballotpedia, House members spent an average of 149 days in session per year between 2001 and 2021, while senators averaged 164 days over the same period, though some of these sessions ran late into the night or early morning. Comparatively, non-Congressional Americans typically have around 260 work days each year. Although members of Congress may undertake additional tasks outside their legislative duties, like meeting with constituents in their districts, such activities are not mandatory, and they receive payment for their time away from the Capitol regardless of how it is spent. The underlying message here could be that tech workers seeking well-paying and less demanding jobs might consider running for office instead of anonymously expressing their grievances on message boards.