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Strong US retail sales data and robust results from Walmart boosted markets and increased confidence that the US economy will avoid a recession and achieve a “soft landing”.
Retail sales leapt 1 per cent in July, the Census Bureau reported on Thursday, the most in a year and a half and far above economists’ forecasts for a 0.3 per cent increase.
Shares in Walmart, the world’s largest retailer, rose 8 per cent after it reported a 4.2 per cent year-on-year increase in same-store sales at its main US stores and raised its annual profit forecast.
“So far, we aren’t experiencing a weaker consumer overall,” Walmart chief executive Doug McMillon told analysts after quarterly results.
The data and comments will come as a relief to investors who have worried that a weakening jobs market and negative reports from other consumer businesses signal that the US economy is heading for a slowdown.
US stocks rose and government bonds sold off. The S&P 500 rose 1 per cent. The yield on the policy-sensitive two-year Treasury note climbed 0.14 percentage points to 4.09 per cent, while the 10-year yield rose 0.12 percentage points to 3.94 per cent. Yields rise as prices fall.
Thursday’s retail sales figure had “helped to alleviate or assuage any fears that the US economy is falling into an imminent recession”, said Mona Mahajan, senior investment strategist at Edward Jones.
The market moves also followed data showing that initial jobless claims for the week ending August 10 had come in at 227,000 — lower than consensus forecasts of 235,000, and down from the prior week’s revised reading of 234,000.
Noting that those jobless claims had “moved in a nice direction”, Mahajan said this and the retail sales figures “really help support the soft landing narrative . . . The consumer may be cooling, but not collapsing.”
US consumers have shown signs of spending fatigue after years of persistent inflation that is only now subsiding. The price pressures have been good for Walmart, where transaction numbers are increasing in the US.
The company said that in the second quarter that ended last month its namesake grocery and merchandise store chain took market share of US sales “across income cohorts primarily driven by upper-income households” attracted by its “value-convenience proposition”.
In groceries, Walmart stores have captured 21.4 per cent of US sales in the past year, according to market research group Numerator, gaining ground on supermarket rivals such as Kroger and Albertsons, which have been pursuing a merger in part to compete with Walmart.
US inflation is moving lower, last month falling back below 3 per cent, but price levels for groceries and consumer goods are between a quarter and a third higher than before the coronavirus pandemic, government data shows.
Walmart has been among retailers boosting discounts to draw shoppers to stores. In the second quarter it offered temporary price cuts on 7,200 items, including a 35 per cent increase in the number of such “rollbacks” for food.
“We’re lowering prices. For the quarter both Walmart US and Sam’s Club US were slightly deflationary overall,” McMillon said. Sam’s Club is Walmart’s member-only warehouse chain, where same-store sales increased 4.6 per cent in the quarter.
Quarterly revenue of $169.3bn topped estimates of $168.47bn after rising 4.8 per cent year on year, faster than Walmart’s previous guidance.
Net income fell 43 per cent to $4.5bn, a drop that reflected certain one-off items. Excluding those items, adjusted earnings per share rose by almost 10 per cent to 67 cents, beating estimates.
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