New York, June 30--Consumer confidence may be surging, but tell it to companies like Wal-Mart, Target and General Motors.
As the Federal Reserve embarks today on its project to moderately raise interest rates a measured amount that is moderate and measured, the consumer picture is distinctly odd.
The Conference Board reported yesterday that, by its survey, consumer confidence was the highest it has been in two years. Its index rose to 101.9 in June, from 93.1 in May.
Yet on Monday, Wal-Mart dragged down its sales expectations for June, citing, as retailers are wont to do, bad weather. Wal-Mart now is forecasting that sales in stores open a year or more will be up only 2% to 4%, rather than its previous expectation of 4% to 6%.
Wal-Mart sales have been disappointing and lagging behind its major competitors for almost a year now. But this week the behemoth had company. Target pulled down its same-store sales expectations, saying that June sales would be "well below plan." The plan, incidentally, was 5% to 7%
Then, GM's vice chairman, Robert Lutz, said that sales this month would be below expectations. GM jammed increased incentives through in May, leading to surging vehicle sales. So it is little wonder that June would be disappointing. But, as they say in the journalism business, three's a trend.
As ever, the relationship between consumer confidence surveys and future consumer spending is murky. Investors wanting confidence measures to alleviate their concerns about the heavily indebted consumer would do better looking elsewhere. Of the latest reports, Wal-Mart's news is the most significant for the economy, as well as for its business and stock price.
The least well-off, who make up a significant chunk of Wal-Mart's customer base, are struggling. Real personal disposable income per capita was down 0.1% in May compared with April, according to the government consumption report released Monday. That was the first decline in eight months and only the second decline in the past 16 months, according to Merrill Lynch economist David Rosenberg. It is too early to tell if it presages a slowdown, but it is clear that still-high food and gasoline prices have taken a toll. Wal-Mart -- along with the dollar stores, which have been performing poorly, too -- feels this most acutely.
Indeed, there has been a diverging picture of consumer health. According to the University of Michigan consumer-sentiment survey, among families with annual incomes of more than $50,000, confidence rose to 104.1 in June from 99.3 in December. But it has been the opposite for families with income under $50,000. In the same period, their confidence fell to 85.5 from 87.4.
Investors should ask whether there is something wrong with Wal-Mart. There is certainly something wrong with the company's stock price. It has been roughly flat since the fall of 1999. The stock hit a 52-week high in early March at just above $61, but has since dropped sharply. Yesterday, it closed at $51.98.
The bad publicity is finally weighing on the company. Wal-Mart has run into problems expanding in places as disparate as Southern California and Vermont. The company is subject to multiple class-action suits, thanks to its labor practices.
A small slice of cheapskates may actually enjoy shopping at Wal-Mart, but it generates nowhere near the hysterical loyalty of Costco. Most folks shop at Wal-Mart despite the interminable check-out lines, the stores that require GPS navigation systems, the parking lots the size of small Balkan states.
Meanwhile, the backlash has seeped into the culture. Wal-Mart is the great symbol of American strip-mall culture. Its stores are gigantic and ugly. The company pays its employees poor wages and deprives them of top-notch health-care benefits, which, of course, Wal-Mart disputes. These are legitimate complaints (offset, in part, because Wal-Mart's low prices are a societal go
