Tuesday, August 14, 2007

The Paycheck Cycle

Walmart lowered its fiscal-year earnings forecast today, citing a sluggish economy and the severity of the "paycheck cycle":

In a prerecorded conference call, Mr. Scott added that Wal-Mart's customers continue to cite "money and finances, the increase in cost of living and gas prices" as top concerns.

"It is no secret that many customers are running out of money towards the end of the month," Mr. Scott said. "The paycheck cycle is, in fact, more pronounced now than it ever has been."

Sales of groceries increased 14% at Walmart while sales of apparel and home-related goods (products with much better profit margins) were "soft."

So what's this mean?

The economy for many working class Americans continues to tank.

People are shopping for grocery bargains at Walmart but they're holding off on bigger purchases (even clothes!) because of money problems. By the end of the paycheck cycle, sales are tailing off because people are out of money and cannot (or will not) borrow it for purchases.

Home Depot
also experienced problems as a result of the housing recession. Its fiscal second quarter net dropped 15%.

Not a good sign for the economy as a whole going forward.

The shills on CNBC are saying "Don't worry, the global consumer will replace the American consumer and save retail sales" and they point to stats released today showing a decrease in the trade deficit.

We'll see. I have a hard time believing the global consumer will completely take the place of the gullible American consumer ever-willing to take on shit loads more debt to buy some piece of crap they don't really need and probably won't use.

UPDATE: Macy's announced lower quarterly profits today and cut its full-year outlook. The parent company of Macy's and Bloomingdale's said sales fell 1.7% and same-store sales fell 2.6%.

More evidence that many American consumers are tapped out.

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