Consumers Still Spending, But Increasingly Price Conscious

A debate continues to rage among investors about the health of the US consumer. This week we got second quarter earnings announcements from Target (TGT), Wal-Mart (WMT), and TJX Companies (TJX). Results suggest that consumers are still out there spending, but growth rates have slowed and they’re looking for deals.

Target reported its first positive same-store sales growth in the last five quarters. Total company sales rose 2.7% from the year-ago quarter, and profits surged more than 40%. Management also raised earnings guidance for the year and noted consumers’ “remarkable resilience.” The stock is up 12% this morning. Wal-Mart reported sales & profit growth of 5% and 9%, respectively. As with Target, profit margins increased despite some price reductions. Management noted mostly positive consumer trends and said it is not predicting a recession. TJX also beat sales & profit expectations with improving results in all divisions (i.e. TJ Maxx, Marshall’s, HomeGoods, etc.).

At the same time, travel demand is clearly softening. American Express says cardholder travel billings growth has decelerated to 6% from 14% a year ago. Both Expedia and Airbnb confirmed slower demand more characteristic of the pre-Covid era. In other words, we’re normalizing. Airbnb said the total number of nights booked began to decelerate in June, though the growth rate was a rather healthy 9% during the second quarter. It could be that consumers have grown tired of expensive airfare & hotel rates.

And we learned from Home Depot (HD) and Lowes (LOW) that consumers are putting off do-it-yourself (DIY) projects and deferring purchases of big ticket items. Home Depot lowered earnings guidance but said its “core” consumer remains healthy and small project demand is resilient.

July’s Retail Sales report, published last week, was rather encouraging. Sales rose by the most since early 2023. Ten of thirteen major goods categories posted increases. Bloomberg News characterized consumer spending as “steadfast,” propped up by a still-strong job market. In addition, the expectation for lower interest rates in the near future should help.