What Retailers Are Saying That Makes Me Believe Economic Growth Is Slowing
Conditions in the U.S. economy are deteriorating fairly quickly. The economic data suggests it’s slowing down. We already saw the U.S. economy decelerate in 2013 compared to 2012; now, investors are asking if this is going to be the case in 2014 as well.
All sorts of businesses in the U.S. economy are worried. This is not a good sign when you are hoping for robust growth.
Homebuilders in the U.S. economy have become very skeptical. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) witnessed a massive drop in February. The index, which looks at the confidence of homebuilders in the U.S. economy, plunged from 56 in the previous month to 46. Any reading below 50 on the HMI means homebuilders expect market conditions to be poor. (Source: “Poor Weather Puts a Damper on Builder Confidence in February,” National Association of Home Builders web site, February 18, 2014.)
Unfortunately, homebuilders aren’t the only ones who are worried and suggesting the U.S. economy isn’t going in the desired direction.
Retailers with major operations in the U.S. economy are feeling the same. Wal-Mart Stores, Inc. (NYSE/WMT)—one of the largest retailers—lowered its profit guidance for the fiscal fourth quarter, ended on January 31, 2014. The CEO of the company, Charles Holley, said, “We now anticipate that our underlying EPS [earnings per share] for the fourth quarter of fiscal 2014 will be at or slightly below the low end of our range of $1.60 to $1.70.” He added, “For the full year, we expect underlying EPS to be at or slightly below the low end of our range of $5.11 to $5.21.” (Source: “Walmart updates FY14 underlying EPS guidance for fourth quarter and full year,” Wal-Mart Stores, Inc. web site, January 31, 2014.) In other words, the company feels that it will not be earning the same profits as it previously predicted. Wal-Mart’s fourth-quarter results were due out this morning.
We have also heard from other major retailers in the U.S. economy, such as Macy’s, Inc. (NYSE/M), regarding their plans to cut costs by reducing their labor force and closing down their retail outlets.
You see, businesses are good at seeing which direction the U.S. economy is heading because they are closest to the consumers and can tell quickly if the trend changes. If they are worried, it means consumer spending in the U.S. economy—a major portion of the U.S. gross domestic product (GDP)—isn’t as robust.
Looking at the sentiment of businesses in the U.S. economy, I am not convinced in the notion that the economy will grow at a faster pace; to me, it will not be a surprise if the U.S. GDP grows at an even slower rate in 2014 than it did in 2013.
Investors should be looking at what businesses are saying as a sign of caution. It’s also a good time for investors to take some profits off the table if they have any. In addition, if investors are holding a losing position, they may want to consider taking a loss and raising some cash instead.