Walmart Worries?

Walmart said WHAT?

Occasionally, I update an indicator I call the Walmart Recession Signal (WRS). Recessions are typically felt first, and ultimately more emphatically, by lower income individuals than by the wealthier parts of the economy. Walmart specifically caters to the lower income distribution and thereby could provide an early read on a burgeoning recession. The WRS compares Walmart’s stock price performance to a group of stocks whose businesses are tied to the wealthiest parts of the economy – the S&P Global Luxury Index. As economic activity slows and recession risk builds, retailing purchasing patterns tend to gravitate toward discounters like Walmart and away from luxury retailors. Consequently, a rise in the WRS could warn of a potential recession or at least a significant economic slowdown.

I haven’t published the WRS for some time and “Walmart Worries” just keep multiplying. Chart 1 shows the WRS since 2005 and since year-end its signal has deteriorated considerably. Probably due primarily to the Iranian conflict (although the WRS was rising even before the conflict began earlier this year), the WRS has surged from about 0.024 at the end of last year to about .0305. It’s currently close to the highest level ever recorded which was during the Great Financial Crisis of 2008-09. The WRS is increasingly advising caution about the U.S. economy since retail purchasing is trending toward discounters suggesting pressures may be building among lower- and middle-income consumers. My guess is the economy avoids a recession this year, but I am becoming more convinced that a significant U.S. economic slowdown is unfolding that will ultimately require additional economic policy accommodation and lower interest rates to arrest.

What follows are some charts highlighting a few “Walmart Worries”.