Wall Street Worries the ‘Wal-Mart Effect’ Is Spreading
Modest improvements in the job market and increasing household wealth, which is the result of higher home values and higher stock market returns, have given some American consumers the confidence to spend. That is good news for the economy, because consumer spending accounts for approximately 70 percent of the country’s gross domestic product. And because government and business spending has remained weak, the economy is depending even more on household spending to fuel growth. But for others, the tougher economic environment brought on by higher taxes and lower government spending has hurt discretionary spending.
Wal-Mart’s (NYSE:WMT) second-quarter results reflect that environment. Last week, the discount retailer reported that sales at stores open for at least one year dropped 0.3 percent in the United States, the company’s largest region of operations, while Wall Street was expecting sales to rise 1 percent. The decline in sales came, in part, as a result of the 0.5 percent drop in the number of visits from its U.S. customers, who are struggling after being hit by January’s payroll tax hike and the ongoing shaky labor market recovery. The company also gave concerning guidance for the second half of 2013.
That news chopped 225 points off the Dow Jones Industrial Average on Thursday. Now, Wall Street is worrying that the “Wal-Mart effect” could spread to other U.S. retailers. But so far, while J.C. Penney (NYSE:JCP) reported a hefty and not-unexpected loss Thursday, Home Depot (NYSE:HD), the U.S.’s biggest home-improvement retailer, beat expectations.