Signs of inflation weariness are starting to appear at some of the nation’s most important retail giants, raising doubts about how long consumers can keep up strong spending.
On Thursday, Walmart, one of the nation’s largest retailers, reported its weakest sales growth since the pandemic recession in 2020, a dip blamed in part on falling prescription drug prices. Analysts expressed concern about Walmart’s growth and what that says about the strength of the U.S. consumer.
“It does raise this question, is the consumer slowing down?” said Neil Saunders, a retail analyst at GlobalData. “There’s definitely a few signs that things are becoming a bit tattered at the edges.”
Surging fuel prices and higher inflation have plagued Americans this year, especially since the war in Iran began in February. Americans have mostly been spending robustly this year, even for things that are not necessities. Consumer spending is important because it makes up roughly two-thirds of economic activity.
Prices grew faster than wages in July, and more cracks in consumer spending are starting to show. July retail sales showed an unexpected slump, and people increasingly feel wary about the state of the economy, according to several polls.
Home improvement retailers, including Lowe’s and Home Depot, continue to feel the effects of a tough housing market. High mortgage rates and home prices have many people opting to stay put and delay large projects in hopes that costs will come down.
Both companies reported growing sales this week, but Home Depot said customers are sticking to smaller home projects amid the “frozen housing conditions.” And Lowe’s noted that demand for discretionary DIY was under pressure.
“Customers continue to tell us that they are being cautious about their spending and prioritizing where and when they invest in their homes,” Lowe’s CEO Marvin Ellison said on a call with analysts.
Even TJX, the parent company of budget-conscious havens TJ Maxx and Marshalls, reported slower sales growth for the division that includes those two chains. But the company said the issues were “self-inflicted.”
“We could have been sharper on having the right goods in the right stores at the right time,” CEO Ernie Hermann said Wednesday on a call after reporting earnings.
Hermann said he’s confident the company will see improvement in time for holiday shopping.
Meanwhile, Target reported strong sales this week, as the company continues its turnaround with new CEO Michael Fiddelke, who took the helm in February. The retailer posted sales growth of more than 5 percent over the past year, and raised its outlook for the rest of the fiscal year.
Retailer earnings this week generally covered the period between April and June, when many Americans still had larger-than-usual tax refunds in their pockets. Those stimulus checks are now gone. Plus, fuel costs and many groceries were higher during this period because of the war. More recently inflation has eased, but it is still much higher than the Federal Reserve’s target of 2 percent.
The end of the year is typically a time for huge sales events, especially around the holidays. Increasingly, experts say, people are holding out for sales to buy big-ticket items, which could boost spending. Promotions in June, including Amazon Prime Day, helped bolster consumer strength.
Both Walmart and Target are prioritizing value and cutting prices where they can to reach a careful consumer, said Arun Sundaram, senior vice president of equity research at CFRA.
“It’s a resilient but cautious consumer,” Sundaram said. “That’s kind of been the theme for a few years now.”
Target said it has lowered prices on 10,000 items in the last year, and that 95 percent of its school supplies are the same price or lower than last year.
Many of the major retailers are also seeing big boosts from tariff refunds, which started filtering in earlier this year after the Supreme Court in February invalidated President Donald Trump’s “Liberation Day” tariffs.
Consumers do not generally get tariff refunds, even though they paid for the price hikes caused by the invalidated tariffs. But Sundaram said he is seeing some retailers lower prices in response to tariff reimbursements.
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