Why does it matter? Wal-Mart (WMT) is the proxy for the US economy now.
The chief executive of Wal-Mart Stores Inc (WMT) said on Monday he expects the U.S. economy to remain extraordinarily challenging in the first half of the year and that he was not expecting a quick turnaround.
Lee Scott made the comments at the National Retail Federation’s annual conference being held in New York. He described it as his last public speech as head of the world’s largest retailer before retiring on February 1. Scott said the U.S. government’s efforts to stimulate the economy should have “some impact,” but added: “I don’t see anything that tells me it’s going to turn around quickly.”
“The second half of the year, you would hope, would be better,” he said. “We all hope by next Christmas it certainly isn’t any worse.” Wal-Mart, the discount giant, has been gaining market share in the last year as consumers seek out its low prices on items such as food and medicine to stretch limited budgets.
But a year-long recession, mounting job losses and tighter access to credit combined to produce the worst holiday sales season in nearly four decades, according to the International Council of Shopping Centers. Wal-Mart was not immune to the harsh climate and last week posted lower-than-expected December sales and cut its fourth-quarter profit forecast.
FUNDAMENTAL SHIFT IN SPENDING
Scott said this downturn may fundamentally change people’s spending habits.
“I’m not necessarily convinced that just when all this liquidity and things hit, if you’re going to have the same immediate desire to go back to consumption and debt,” he said, referring to a potential U.S. government stimulus plan. “There are a lot of young people who have learned what it’s like when you are living on the edge and the bad times come.”
Here is the thing. After years of irrational debt, American reacted very rational when they were issued stimulus checks this summer. They paid bills and paid off debt. No matter what comes out of Washington this spring, there is no reason to think US consumers are going on a spending spree anytime soon. There has been a fundamental shift in behavior and the reaction to those summer checks proves it. That means anemic growth at best this year.
None of this takes into account the upcoming Alt-A mortgage train wreck barreling down on a staggering housing market, the possibility of inflation due to the flooding of the market with US dollars, foreigners losing interest in US debt causing a rise in interest rates, etc.
This is just the consumers behavior….
Are we doomed? Hell no. Are we going to enter a depression? No. None of that means the next year or two are going to be pretty or easy though. Just do not expect too much..
Disclosure (“none” means no position):Long WMT
Visit the ValuePlays Bookstore for Great Investing Books