Daily Ticker

Friday’s Wal-Mart Selloff Signals Lack of Confidence in the Consumer

Daily Ticker

Wall Street is suddenly showing some concern over the struggles of cash-strapped American consumers.

When emails from mid-level Wal-Mart Stores Inc. (WMT) executives surfaced in a Bloomberg News article Friday afternoon, characterizing early February as the worst start in years for the chain’s monthly sales, Wal-Mart shares dropped a quick 2.5% before recovering two-third of the losses.

While the internal messages were called out-of-context by a Wal-Mart spokesperson and only referred to a brief period of sales results, the market’s swift negative reaction shows investors’ acute sensitivity to any suggestion that the restoration of the 2% payroll tax Jan. 1 could measurably crimp the buying power of lower-income households.

Aside from the end of the payroll-tax waiver - which began clipping another $80 from the average earner’s monthly take-home pay at the start of the year – moderate-income consumers are also being pressured by delays in the distribution of tax-refund checks. The Congressional stalemate over the “fiscal cliff” at the end of 2012 forced the IRS to wait before preparing the necessary tax schedules that determine tax bills and refunds.

A final factor that is crimping household spending ability is the recent rise in gasoline prices. Nationally, prices have climbed for 32 days straight and are higher today than they were at the same time last winter.

This collective headwind isn’t doing much to dampen broad expectations that the domestic economic recovery remains well intact, with the housing and auto markets reviving, big companies in strong financial shape and the stock market ticking to fresh five-year highs. But it shows that for the typical consumer, the rebound has been muted by stubbornly high unemployment and stagnant wages.

A newly updated University of California-Berkeley study on income-growth variations by wealth level showed that the longstanding pattern, in which well-off households realize the vast majority of national income gains, continued to prevail in the first two years of the current recovery through 2011. While the richest 1% saw real earnings climb 11.7% during that period, the rest experienced a 0.4% dip in real income.

This is the broad context in which the debate over the federal minimum wage is occurring. President Obama last week proposed raising minimum hourly pay to $9 from $7.25, reprising the old argument over whether such laws hurt the poor by depressing employment, or help them by raising incomes across the spectrum of unskilled jobs. With labor costs as a percentage of corporate revenue now at a record low as companies have become ever-more efficient, one unknown aspect of the present economic moment is whether cyclical forces alone will begin to lift wages and tighten the labor market.

Not all of Wal-Mart’s apparent sales challenges can necessarily be traced to the broader forces acting as a drag on consumer spending power. Some retail analysts point out that the Bentonville, Ark.-based giant several quarters ago decided to “invest in price” at its Sam’s Club and flagship chains, meaning they were driving prices even lower to spur demand across numerous product areas. With foot traffic in its stores nudging higher last year in response, Wal-Mart was able to show healthy sales increases. Now the company is lapping those traffic gains, making it harder to show the same top-line momentum.

Wal-Mart will offer its official take on its results and outlook when it reports fourth-quarter results Thursday.

View Comments (230)