Wal-Mart and the Buck

Today looks to be a bumpy, with futures deep in the red as European stocks took a header on "a weaker dollar and prospects for higher interest rates."

In the U.S., Wal-Mart’s same-store sales for the month of May came in at the bottom end of its range  — a 2.3% increase, with high gasoline and utility prices getting the blame.

We have previously discussed the "bifurcated nature" if this recovery cycle (more on this in the near future) — but it is apparent that high gas prices are having more impact in some consumer asegments than others.

Over the weekend, the NYT had a column Gas Prices Aren’t Deterring Summer Travelers. That suggests that some strata of consumers are not yet feeling a significant pinch from $3.50 gasoline. To Upper Middle income and higher, its a minor annoyance. As we noted last year, to those in the lower economic strata — thats Wal-Mart’s key demographic — there is more pain felt, and a lowered ability to substitute other products or juggle finances around. There is also a "more pronounced pay cycle." The WSJ describes this as customers who "appear to be living paycheck to paycheck and clustering their spending around paydays on the first and 15th of the month."

The Journal further observed that:

"Wal-Mart, of Bentonville, Ark., previously forecast an increase in same-store sales — or sales at stores open at least a year — of 2% to 4% for May. For the fiscal first quarter ended April 30, the retailer had reported early success in several campaigns to bolster its operations, such as cutting inventory costs and reining in labor costs, but its executives warned that they noticed early signs that soaring gasoline prices were hindering sales."

This has been a long time in the making. Since last Summer, there were early warning signs — but many economists denied the potential slowing of the American consumer.

Without a drop in fuel prices, I expect to see more pressure on low income consumers as the year progresses. And depending upon rates and the real estate market, this slowdown will move further up the economic scale, and begin to slow down the middle class. Plasma screen sales? I suspect they may begin to slow sometime over the next few quarters.

Of course, none of this matters, because there is no inflation in the core rate . . .

>

Sources:
Wal-Mart Sees Tepid Rise in Sales
By KRIS HUDSON
May 30, 2006; Page B4
http://online.wsj.com/article/SB114876995753065238.html

European Stocks Fall, Led by BMW, Diageo, Financials, Utilities
Alexis Xydias
Bloomberg, May 30 2006
http://quote.bloomberg.com/apps/news?pid=
10000006&sid=aLEE1y9b8Rag&refer=home

Category: Commodities, Economy, Energy, Inflation, Real Estate, Retail

How Cheap is the Market?

Category: Apprenticed Investor, Data Analysis, Earnings, Investing, Markets, Psychology

Massive Memorial Day Weekend Linkfest

Category: Weblogs

Yield Curve Inversion

Category: Economy, Federal Reserve, Fixed Income/Interest Rates, Technical Analysis

Pick the Bubble: S&P500 or CRB?

Category: Commodities, Investing, Markets, Psychology, Technical Analysis

CPI Overstates Inflation? Puh-Leeze!

Category: Economy, Federal Reserve, Inflation, Markets

Fund Flows Go Defensive

Category: Technical Analysis

Relative Strength as a Strategy

Category: Investing, Markets, Technical Analysis, Trading

Media Appearance: Kudlow & Company (5/25/06)

Category: Media

Uh-Oh: The Economist Cover

Category: Economy, Financial Press, Markets, Psychology