02/24/2023
Walmart CEO Doug McMillon recently described American consumers as "choiceful, discerning, thoughtful" during the company's quarterly earnings call on February 21st. However, despite this praise, recent data suggests that consumers are not being as careful, thrifty or frugal as they might be. Despite a decline in real disposable income of over 6% in 2022, consumer spending actually increased. The trend continued into January, as retail sales rose by 3% month on month, and consumer sentiment reached its highest level in over a year, fueled by a warm winter, 517,000 new jobs, and a sizable bump in social security payments.
Some have taken these trends as evidence of a "soft landing" scenario, in which the economy avoids recession despite tighter monetary policy. Walmart's fourth-quarter results appear to support this idea on the surface, with comparable sales in America growing by 8.3% compared with the previous year, beating expectations. However, closer examination reveals some concerning trends. Walmart's grocery sales growth was fueled in large part by cash-strapped consumers, including high-income families, trading down from more expensive supermarkets. Meanwhile, higher-margin discretionary offerings such as toys, clothes, and homeware saw less growth, despite heavy discounting to clear inventory.
Most troublingly, Walmart's sales growth forecast for the current fiscal year is 2.5-3%, below analysts' expectations. While the company's overall sales figures remain strong, these warning signs suggest that the American consumer may not be as healthy as Walmart's CEO suggests.
What is your opinion on the state of the American consumer, given Walmart's recent concerns about their health and spending habits?
