While the future actions of the Federal Reserve to fine-tune the economy are still uncertain, it appears U.S. consumers are the ones tapering their personal spending.
A series of reports last week from the nation’s largest retailers show a significant slowdown in sales and warnings the situation could get worse before the end of the year.
"Second-quarter sales performance was softer than anticipated and we are disappointed with the results. Our performance in the period, in part, reflects consumers continuing uncertainty about spending on discretionary items in the current economic environment," said Terry Lundgren, CEO at Macy’s (NYSE: M).
As a result, the retailer has reduced its comparable sales forecast for the entire year to a range of 2.0 percent to 2.9 percent, down from the previously announced level of 3.5 percent.
But Macy’s wasn’t the only company to sing the blues. Even Wal-Mart Stores Inc. (NYSE: WMT), the world’s largest retailer, shook things up when it reported a slowdown in shopping activity and lowered its forecast for the year.
Wal-Mart said traffic at its stores declined 0.5 percent compared to the same quarter a year ago and said sales were negatively impacted by lower consumer spending due to the payroll tax increase at the start of the year and lower inflation.
"The retail environment remains challenging in the U.S. and our international markets, as customers are cautious in their spending. Net sales in the first six months were below our expectations, so we are updating our forecast for net sales to grow between 2 and 3 percent for the full year versus our previous range of 5 to 6 percent," said Chief Financial Officer Charles Holley.
Those comments were enough to drag down Wal-Mart stock by $1.99 on Thursday to $74.44. The shares had hit a 52-week high just under $80 earlier this month. Wal-Mart is one of the 30 stocks in the Dow Jones Industrial Average.
Casual observers might be surprised by the significantly lower forecasts by Wal-Mart, Macy’s and other retailers. Parking lots are jammed at Walmart stores regardless of the day of the week, and malls are also at capacity on weekends. This has prompted at least one analyst to suggest things are better than they seem.
“Gains in house prices and equity prices are increasing household net worth and that is a good thing for consumer spending. Stir in greater credit availability and add a pinch of consumer confidence and you have a recipe for moderate gains in consumer spending through the third quarter, which will support stronger GDP growth in the second half of the year,” said Robert Dye, an economist with Comerica Bank (NYSE: CMA).
Household net worth, a calculation from the Federal Reserve of U.S. assets minus liabilities, rose to an all-time high at the end of the first quarter this year at $70.3 trillion. Five years ago household wealth had dropped to $54.1 trillion.
To be sure, retailers have benefits of late from the traditional back-to-school shopping season. The National Retail Federation estimates families will spend $72.5 billion this year to dress and gear up their kids for school. As a result, retail sales in July rose for the 13th consecutive month.
"However, consumers alone can’t be expected to shoulder the burden of the economy. Fiscal and monetary policy uncertainties combined with stagnant economic and employment conditions continue to breed a volatile market with extreme swings in consumer spending. The economy can’t seem to maintain any amount of momentum. We just can’t seem to pull ourselves up," said Matthew Shay, president of the retail group.