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Wal-Mart dumps cold water on U.S. economic bulls

Wal-Mart to Mega Bulls: Umm, sit down a moment -- can we talk?

The retailing giant not only missed the Street's third-quarter estimates, it also warned that its fourth quarter will likely come in lower than analysts' forecasts. This was the first such miss since 1994, and an ominous sign that all is not swell in consumer land. It also points to a near giddy optimism amongst some analysts which may ultimately be proven unfounded:

"CHICAGO, Nov 13 (Reuters) - Economists and politicians giddy about prospects for U.S. economic growth got a dousing of cold water on Thursday from Wal-Mart Stores Inc.(nyse: WMT - news - people), the world's largest company. The retailer -- which taps directly into the psyche of the U.S. consumer -- gave a downbeat economic outlook that contrasted with reams of recent data, and bluntly suggested that many of its shoppers are barely making ends meet.

"Customers continue to buy the cheapest items in any given category -- a sign that household budgets remain tight," Lee Scott, Wal-Mart chief executive officer, said on a recorded message. Buyers are "timing their expenditures around the receipt of their paychecks, indicating liquidity issues," Scott said. "I don't think consumer spending is slowing, but I also don't see the strength that many of you in the investment community appear to see," Scott said. (emphasis added)

Wal-Mart's sober outlook came after the U.S. economy enjoyed its fastest gross domestic product growth in almost 20 years in the third quarter and is seeing job growth after a years-long slump. But retailing juggernaut Wal-Mart, based in Bentonville, Arkansas, is an economic indicator by itself. An estimated 100 million people shop at its U.S. stores every week. The company takes in 6 to 8 cents of every U.S. dollar spent on retailing, excluding autos. "The Wal-Mart numbers leave open the question 'is this just a breather in consumer spending or is it the start of the long-awaited consumer spending recession?'" said Cary Leahey, senior U.S. economist at Deutsche Bank Securities."

A similarly cautious outlook was also heard from the nation's No. 2 discount retailer, Target, which warned on Q4 earnings estimates.

U.C. Berkeley economics professsor Brad DeLong notes the "strange third quarter news" from Walmart, and I have to note that its not strange at all -- the further in time we move away from the tax rebates and refis, the less cash consumers have. That's not strange -- its simple, and to be expected . . .

Sources:
Wal-Mart dumps cold water on U.S. economic bulls
Forbes/Reuters, 11.13.03, 2:07 PM ET
http://www.forbes.com/markets/economy/newswire/2003/11/13/rtr1147178.html

Wal-Mart Still Sees Some Consumer Caution
By Troy Wolverton Staff Reporter, thestreet.com
11/13/2003 02:20 PM EST
http://www.thestreet.com/stocks/troywolverton/10126305.html

The Wal-Mart effect
Mark Gongloff, CNN/Money Staff Writer
November 13, 2003: 2:27 PM EST
http://money.cnn.com/2003/11/13/news/economy/wmt_effect/index.htm

Climbing a Wal of Worry
By Monica Rivituso
Smart Money, November 13, 2003
http://www.smartmoney.com/thealmightyconsumer/index.cfm?story=20031113

Friday, November 14, 2003 | 12:03 AM | Permalink | Comments (1) | TrackBack (0)
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Comments

Over the last few weeks I have been noticing what I believe is a substantial increase in weekend traffic. I shop mostly on the weekend (not in Walmart though), and I have an impression that there are more cars on the road, and more people in the stores. It may be just me (shopping at a different time of day?), but I wonder whether there may be other factors at work -- (1) more shopping in general, (2) shoppers shifting from working days to the weekend (working longer hours?), or (3) paycheck spending at the end of the week, as indicated in Walmart's statement. This in the SFO Bay Area, formerly known as Silicon Valley.

Posted by: cm | Nov 15, 2003 10:57:29 PM