A sign of trouble ahead?
CNBC:
Home Depot on Tuesday reported its biggest revenue miss in more than 20 years and lowered its forecast for this year, as consumers delay large projects and buy fewer big-ticket items like patio sets and grills. The home improvement retailer said cold weather and falling lumber prices also hurt fiscal first-quarter sales. Its last quarterly miss of this magnitude was in November 2002.
Some “special” factors have played a role in this, of course (cold weather, lumber), but it’s interesting to see it nonetheless, and this was the second quarter in a row during which the company has disappointed.
Perhaps this is just a matter of consumers ending their pandemic-era renovation binge, but it could be a broader sign that they are pulling in their horns. Three weeks ago, consumer confidence numbers hit a nine-month low.
U.S. consumer confidence dropped to a nine-month low in April as worries about the future mounted, further heightening the risk that the economy could fall into recession this year. The consumer confidence survey from the Conference Board on Tuesday also suggested that Americans were getting ready to hunker down as dark clouds gather, with the share of them planning to buy major household appliances over the next six months falling to the lowest level since 2011.
And Target?
CNN:
Target’s total sales ticked up 0.5% during its latest quarter from a year ago, the company said Wednesday. But digital sales fell, and the company said shoppers pulled back on discretionary purchases in what CEO Brian Cornell called a “very challenging environment” for consumers.
Target said sales of clothing, home goods and other discretionary categories dropped by up to low double-digits, while food and beverage sales increased by high single digits.
“We continue to face elevated volatility and see a reprioritization of spending away from discretionary categories in the face of persistent inflation in groceries and essentials,” Target chief growth officer Christina Hennington said on a call with analysts.
Target is the latest retailer to say shoppers pulled back on items like clothing and home goods and shifted to groceries and necessities. Lower and middle-income consumers have been squeezed the most by rising prices.
But the retail-sales data suggest that consumers are still not in bad shape.
The Commerce Department on Tuesday reported that retail sales rose a seasonally adjusted 0.4% in April from a month earlier after slipping 0.7% in March. That was less than the 0.8% economists polled by The Wall Street Journal had expected. But sales excluding gasoline stations, car dealers, building-materials stores and food services—the so-called control group that economists use to track the underlying pace of consumer spending— rose 0.7%. That put control spending above its first-quarter average, setting the stage for another quarter of spending gains.
The report also showed how the contours of consumer spending continue to shift. Sales at furniture and home furnishing stores, department stores and electronics and appliance stores, all of which were pandemic beneficiaries, fell. Sales at food services and drinking places rose.
Then again (via CBS):
Americans continue to bury themselves in credit card debt this year, with the latest total balance inching close to $1 trillion.
U.S. consumers now owe $986 billion on their charge cards, according to Federal Reserve Bank of New York data released Monday. That’s a 17% jump from a year ago and a record high, analysts at Bankrate said. The debt keeps piling up partly because stubbornly high inflation is forcing households to lean on their credit cards to cover monthly expenses, financial experts said.
“High inflation is certainly contributing to Americans’ high credit card balances, along with record high interest rates,” Ted Rossman, senior industry analyst at Bankrate said. “More than a third of U.S. adults have more credit card debt than emergency savings, the highest since we started tracking this in 2011.”
Total credit card debt reached the same mark during the final months of 2022, and the balance remained unchanged in the first quarter of 2023, the Fed data shows. That’s noteworthy because households typically rack up debt to pay for holiday festivities, then pay off balances by spring.
Rossman said 2023 marks “the only time since the New York Fed started tracking these figures in 2003 that credit card balances did not fall from Q4 to Q1.”
Put this all together and throw in declining real incomes, and a consumer retreat seems more likely than not, and (if I had to guess) coming sooner rather than later. As Kevin Hassett pointed out in late March, consumption has been propped up by unsustainable factors (Covid-related relief programs, essentially), and those savings are coming to an end.