Consumer Health – Caught In A Slow-Motion Dash For The Door

Inflation chart

Last week was this quarter’s consumer week in earnings reporting.  Home Depot, Walmart, Target, Foot Locker and TJX all reported.  While they were a mixed bag, consumers are still spending.  Home Depot however, was a significant outlier and gave us some forward-looking information that suggests that the remodeling boom may have come to an end. 

Home Depot is an amazing company, and their recent run of success was one of the best stories to come out of the pandemic, but these are among the first big cracks we’re seeing in consumers’ willingness to spend.  Maybe it’s just a blip, but is it because consumer debt loads are finally catching up to them?  Inflation is still outpacing wage growth even if the gap is closing. 

And credit card debt is still rising. 

As pointed out by CoStar, the household debt service ratio still remains below the prepandemic average, but the pace of change is not without its drama.  If we are to interpolate last quarter’s earnings to the rest of the year, we’d suggest that smaller ticket items are doing better than large, and food is being prioritized over big discretionary items. 

This begs the question, is the consumer repositioning their habits to better fit a tighter economic condition?  It’s starting to look that way.  Until we have a few more data points, it’s difficult to call this a trend, but the action we’ve seen suggests that the runaway train may be coming to a halt.  

Sources: CNBC, CoStar


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