Wal-Mart 'good gauge' of U.S. economy
By Steve Matthews
Bloomberg News Service
The U.S. economy is in Judy Leonard's shopping cart in the paper goods aisle in the Lexington, N.C., Wal-Mart.
Her cart holds Great Value freezer bags for $1.94, 40 percent less than Ziploc bags; Mardi Gras paper napkins at 82 cents, half the price of Vanity Fair; and a two-roll package of Sparkle paper towels at $1.98, a third less than Bounty.
"I am trying to cut back," said Leonard, 55, a clothing plant worker. "I don't know how long my job is going to be here."
Wal-Mart Stores Inc. cares about the contents of her cart because store sales are growing about half as fast as in the past decade.
The U.S. Federal Reserve and private economists watch her spending because they use the world's largest retailer as an economic indicator. The company accounts for 9 cents of every U.S. retail dollar and its cash registers check out 19 million customers a day, more than any other chain.
Fed governors and staff call the chain's Bentonville, Ark., headquarters to check sales, while Federal Reserve Chairman Alan Greenspan has spoken with Chief Executive H. Lee Scott Jr., Wal-Mart said.
That makes Wal-Mart, the world's biggest seller of toys, diamond jewelry, underwear and DVDs, a key indicator of whether U.S. consumers are spending more as a result of President Bush's $330 billion tax cut.
"Any economist who does not pay attention to what Wal-Mart has to say is missing the boat," said Richard Yamarone, an economist at Argus Research Corp. "A lot of people are postponing purchases until the job market improves and job creation begins."
The initial evidence: The tax cut won't spark a spending boom.
Although sales at Wal-Mart's U.S. stores open at least a year climbed 6.9 percent in August from a year earlier, the biggest rise in 14 months, Treasurer Jay Fitzsimmons cautioned on Sept. 4 that the increase may be short-lived. The boost from the tax-cut payments won't last, he said.
September sales will rise at the high end of its forecast of 3 percent to 5 percent, the company said this week in a recorded message. October sales in stores open at least a year are likely to rise within the same range, Fitzsimmons said in a Prudential Securities conference presentation broadcast over the Internet.
The chain's forecast indicates that consumer spending may not accelerate in coming months, said Gene Huang, chief economist for FedEx Corp., the world's largest overnight-delivery company.
"Wal-Mart is a very good gauge," Huang said. "The labor market is still weak. There's no reason to expect a strong recovery in the consumer sector."
Sales are rising 3.4 percent this year at Wal-Mart and Sam's Club stores, about half of the average gains of the past decade, reflecting U.S. economic growth of 2.25 percent as opposed to 3.23 percent in the past 10 years.
Wal-Mart also reflects changes in consumer demand: Wal-Mart sold 903,000 rolls of duct tape in two weeks after Homeland Security Director Thomas Ridge called for stepped-up emergency preparedness in February.
Those characteristics make Wal-Mart a test of whether consumers will spend or save the $14 billion in tax-credit payment checks that 25 million families received from July 15 to Aug. 8.
Wal-Mart Vice Chairman Thomas Coughlin said its shoppers may use that money to pay bills or save it in case they lose their jobs after unemployment peaked at a nine-year high of 6.4 percent in June.
Wal-Mart shoppers may get less help from the tax cut than the overall U.S. population because of the average income of the chain's shoppers.
Although about 60 percent of Americans with household incomes of $24,000 to $36,000 have shopped at Wal-Mart in the past few months, the proportion drops to a fourth of members of households with incomes of at least $75,000, Beemer said.
Wal-Mart's economic effect extends further: The company's 1.1 million U.S. employees make it the nation's biggest private employer. The chain plans to hire 800,000 more workers over the next five years — more than the population of Vermont.
The job creation has helped the labor market because other employers have cut 1.4 million jobs since the economy emerged from the latest recession in November 2001, according to the Labor Department.
"Without Wal-Mart, the country would be in a deep recession," said John Challenger, of the Challenger, Gray & Christmas outplacement firm, who has served on the labor/human resources committee of the Federal Reserve Bank of Chicago.
By spending on computers to track inventories and linking its information with suppliers to reduce supply costs, Wal-Mart also contributed to an acceleration in U.S. labor productivity gains in the late 1990s, the McKinsey & Co. consulting firm reported.
The bargain hunting at Wal-Mart further reflects the overall U.S. economy. Wal-Mart shoppers this year are buying the lowest-price merchandise, including 25-cent Kids Connection sodas and $5.88 second-run DVDS.
The chain's executives recognize that economists take interest in Wal-Mart's sales because they are larger than the combined total of the next four biggest U.S. retailers: Home Depot Inc., Kroger Co., Target Corp. and Sears, Roebuck & Co.
Wal-Mart is "kind of America, or middle America," Executive Vice President Robert Connolly said.
Connolly added that "90 percent of everyone who has a Wal-Mart available to them shops there."
