Walmart (NYSE: WMT) is the largest company in the world by revenue. Speaking of which, it’s worth listening to, because no other company has its finger firmly on the pulse of the American consumer. Walmart earns nearly 10% of every dollar in non-automotive retail spending in the U.S., and it is also the country’s (and the world) largest employer, making it highly influential on the U.S. economy as a useful barometer for the economy and for investors of all stripes.
In its report for the second quarter, from Tuesday morning, Walmart had mostly good news for investors to share. Comparable sales jumped 9.3%, driven by strong performance in food and general merchandise such as home improvement, sporting goods, outdoor, and electronics. Revenue rose 5.6% to $ 137.7 billion, topping estimates at $ 135.5 billion, while adjusted earnings per share jumped from $ 1.27 to $ 1.56, good for the Wall Street consensus at $ 1, 25.
Image Source: Walmart.
Investors cheered the results, pushing the stock up 6% in pre-market trading, but equities ended the session down 0.7% as one item worried investors on the report. Several times in its presentations, the management noted the effects of stimulating the government, saying it received a significant windfall from federal handouts, many of which ended in July. Walmart’s similar sales fell to about 4% in July when incentive payments began to decline, management said.
CEO Doug McMillon seems to believe that stimulating the government was the biggest driver of growth in the quarter, saying, “My point is that the order of things, the order of tailwinds that affected the company were one, stimulus. , two, eating at home, three, being at home, and all the things you wanted to do to make the inside and outside door more comfortable. “
Given Walmart’s size and impact on the economy, that statement could indicate that an economic slowdown, at least in consumer sectors, is underway without another congressional incentive bill. Other data points seem to confirm those fears.
A V-shape like a W?
The long-promised V-shaped recovery has arrived, at least in some metrics. De S&P 500 again reached its full height on the same day as Walmart reported its revenue, six months after it peaked in February before the coronavirus pandemic struck. Similarly, after declining in March and April, U.S. retail sales went through May and June, and by July, overall retail sales, including food services, had fully returned to $ 536 billion, a record for a single month.
But that V-shaped recovery is not a reflection of the underlying state of the economy. The unemployment rate is still in double digits, and about 1 million Americans file weekly for unemployment insurance, a higher rate than at any point before the pandemic. The benefit of the Federal Pandemic Unemployment Benefit expired last month and with it the $ 600 weekly checks that went out to 20 million to 30 million Americans without work.
As a result, U.S. consumers have significantly less money to spend this month. According to Treasury Department data, through the first 17 days of the month, federal unemployment benefits fell from $ 60.8 billion in July to $ 29.5 billion in August. That data extrapolated by the end of the month means Americans will lose close to $ 60 billion, or more than 10% of monthly retail spending, assuming Congress does not trade. Meanwhile, other funding, such as the Paycheck Protection Program, is also on the rise, leading to layoffs and business closures.
In addition to essences, much of that incentive money was spent on discretionary items such as home improvement items, smartphones, and restaurant takeout. Consumer spending drives 70% of the U.S. gross domestic product, and if a retailer like Walmart says there is a clear headwind at the end of government incentives, it is almost likely to affect the majority of businesses with consumers.
Other data points also show a reduction. According to a report by India, the largest job posting website in the world, job openings in the US have essentially plummeted in August after being strongly recovered in recent months, and last week marked the first time that the gap between job posts in 2019 and 2020 had expanded since April, as job posts in the week ending August 14 were 20.3% below the same week in 2019, compared to 18.1% the previous week.
Which is clear
Predicting what will happen to the stock market in the coming months is a cross-selling move, as the volatility of recent months has shown, but investors should take Walmart’s comments on government stimulus to heart. Without another round of emergency funding from Congress, shops, restaurants, and other businesses that rely on consumer spending are likely to see a significant drop in spending, and that means what appears to be a complete V-shaped recovery in both the retail sector and the stock market could be a mirage.
