Lowe's Just Gave A DIRE Warning About Consumers

追加: 2026-05-22

[00:00:00]Home improvement giant Lowe's had some really bad news about the state of the American consumer. CEO Marvin Ellison said, quote, "This is the most difficult environment we've faced since the financial crisis and Lowe's hardly alone. Walmart continues to benefit from higher inome Americans that are trading down, but also said lower income Americans, lower income consumers, their customers are running out of their tax refund money." And then there's Kroger.

[00:00:30]The country's biggest supermarket operator is leaning into price cuts and value investments because its grocery shoppers are facing enormous pressures on their income. Yep, the opposite of inflation. Input costs go up, but companies can't pass them on to their customers who just can't afford anymore.

[00:00:48]When the nation's largest grosser says it needs to cut back on its prices to defend their customer relationships, it's a very clear sign of consumer exhaustion. And just as all these companies are describing a household sector under strain, S&P Global comes out with its latest PMI data that adds yet another serious warning. In its latest update released earlier today, it all too neatly sums up the predicament being described by Walmart, by Kroger, and Lowe's. Quote, measured overall employment fell in May for the second time in the past three months. The rate of job losses reaching the highest since August 2024 due to growing concerns over rising costs and deteriorating demand conditions. Classic energy shock stuff.

[00:01:33]And then they add service sector jobs are reduced at the second fastest pace since May of 2020. Now, factory jobs, according to S&P Global, were higher only because producers are rushing to make as much stuff as they can before their own costs soar and raw materials run out. There's going to be an intense payback in the production sector once the flurry of emergency inventory building does dry up. So, the stock market can be all about AI and economists and central bankers can talk all they want about soft landings, but Lowe's and Kroger and Walmart, the PMI indexes and especially in for employment, they all point to one thing, the same thing. Consumers are breaking down. Not catastrophically, not crashing off a cliff, but one squeezed paycheck, one delayed grocery trip, one canceled DIY project, and one missing hiring plan at a time. It is happening and it is accelerating and we've seen this too many times. So, let's start with Lowe's because home improvement is a very useful window into at least consumer psychology. Home improvement is one of those places where consumer confidence shows up in actual activity. Yes, they keep telling surveyors they're they're pessimistic, but here their wallets and their mouth meet the road. If households feel good about income, job security, and home values, their financing costs, they're going to be spending on kitchens and bathrooms and appliances, flooring, and you know, other outdoor projects.

[00:02:59]When they're not confident, those projects gets pushed into maybe later.

[00:03:04]So, Lowe's doesn't just sell emergency repair items. It sells confidence. When people believe their jobs are secure and their wages are going to rise, their home equity is going to be safe and, you know, borrowing costs are manageable, they spend money on their homes. They replace appliances before they absolutely have to. They remodel their bathrooms. They upgrade kitchens and add patios and refresh landscaping. That kind of spending is the very definition of discretionary and it's usually very expensive. So when Lowe's says DIY demand is still pressured, especially in big ticket categories, the message is not complicated. Households are prioritizing necessities. Now CEO Marvin Ellison's latest comments, they basically confirm what we've been seeing for a while. The consumer is still very cautious, to put it kindly. Professional contractor demand may be holding up a little bit better in some areas, but the do-it-yourself customer is under pressure from higher rates, higher living costs, and of course, uncertainty. It's not really uncertain.

[00:04:01]It's their picture in their perceptions of the labor market. And that's the important part. This is not just about people not wanting to paint a room this weekend. This is about households looking at their budgets and saying, "Well, the roof can wait. The new fridge can wait. The flooring can wait.

[00:04:14]remodeling can wait. And the reason it can wait is because too many other things can't. And this is why the CEO, Mr. Ellison, talked about this being the worst climate since 2008 and 2009.

[00:04:26]Groceries can't wait. Insurance can't wait, rents got to be paid, just like the car payment, the electric bills coming up, and then gasoline, the huge price increase at the pump. It's got to be met. Now, this episode is sponsored by Augusta Precious Metals. Now, most of what we cover on this show is how the financial system actually works. The mechanics, the incentives, the plumbing.

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[00:05:42]Consult a qualified financial professional before making any investment decisions. So, Lowe's becomes part of the hardship story. Not that Lowe's is crashing and collapsing, but it's saying consumers are under stress and even more they're pointing us in the direction of that stress. Big ticket discretionary items. Classic latestage cycle behavior. Classic energy shock stuff.

[00:06:06]Now, Walmart's latest results were strong, at least at the headline, but that strength tells us a very different story than the numbers suggest. The company continues to gain shoppers across income groups, including especially higher income households that are trading down. While management keeps pointing out that lower income consumers, they remain stretched, value focused, and in their words, selective.

[00:06:28]They're buying food and essentials and lowerpriced alternatives. They are not acting like everything is fine. So, Walmart's comparable sales were solid and e-commerce continued to grow. The company was gaining market share as traffic held up. But here's the trap.

[00:06:43]Walmart doing well is not automatically a sign that consumer economy is healthy.

[00:06:47]In fact, oftentimes it's the opposite.

[00:06:50]Walmart does well when people are confident spending freely at times, but most times Walmart does well because people have no choice but to trade down.

[00:06:59]And that has been the story for for quite a while already. They've been attracting higher income shoppers, including households making over 100,000 a year. That's not normal. Everything is great behavior. That's what happened when insurance costs and housing costs and debt payments start moving up the income ladder. At the same time, Walmart management has continued to describe lower income consumers as stretched and value conscious. They're focused on essentials. They're looking for the rollbacks. You know, they're buying the private label stuff that Walmart has to offer plenty everywhere. They're making choices inside of their basket. And that phrase choiceful has become one of the most important words in all of retail, not just with Walmart. It sounds harmless. It sounds corporaty, but it means the consumer is making tradeoffs.

[00:07:45]They buy chicken instead of steak, store brands instead of the national brands.

[00:07:49]You know, smaller package sizes, fewer discretionary items, just like we heard with Lowe's, fewer impulse purchases, more groceries, fewer general merchandise items. As CFO John David Rainey told CNBC earlier today, quote, "I think higher tax returns muted some of the pressure related to higher fuel prices. And as we're in a period of time right now where those tax refunds are largely not coming in, I think consumers are going to feel more of that pressure from higher fuel prices. It's something they were keeping a close eye on. So that's why Walmart can report strong sales while still warning about the condition of the consumer. the company is taking share because it's positioned as the lowpric option. But if the low price option is where more and more households are going, that says something important about the rest of the economy. And then there's another issue here, cost pressures. Walmart has warned that it's going to keep it's going to try to keep its prices low, but it can't absorb everything. Retail margins are thin to begin with. If costs go up, and that's what's going to happen, some of that is it's going to pressure Walmart at the margins. It's exactly what stretched households don't really need. A low-income consumer already spending a larger share of income on food and rent and transportation, not to mention utilities. They just don't have room for another round of price increases. If Walmart gets squeezed, there's nowhere left to go. So, even small increases matter when the budget's already maxed out among their customers. And that means Walmart's not just a retail story.

[00:09:17]It's a consumer hardship indicator.

[00:09:21]Then Kroger comes along and adds yet another piece to this. Now the grocery giant has been talking about price investments for some time, ever since they brought in a new CEO. And what that really means is putting the the company in position to offer lower prices and better incentives and a better experience to their grocery shoppers um to try to compete with Walmart. And while that sounds good for individual shoppers, and it is indeed good for individual shoppers, it is absolutely bore the same commentary on the overall economy and the hardships that people are facing, which are not consistent with an economy that looks like the stock market does. Groceries supposed to be defensive. People have to eat. Food demand does not disappear the way demand for furniture or electronics does. Even groceries though, consumers are pushing back. They're switching brands. They're shopping across stores. They're comparing prices more aggressively and using loyalty apps. They're buying fewer premium items and they're waiting for discounts. They're changing what goes into their cart. That's why Kroger cutting prices matters. And here's what was just reported. Quote, "The largest US grocery company, which owns 21 chains, including City Market and Fred Meyer, is laying the groundwork for lower prices across product category, CEO Greg Forin, told Bloomberg News in his first interview since taking the role in February." Management is currently making plans to test price cuts and then phase them in. The reality is the basket has to come down and not everyone's basket is the same. It needs to be across thousands of products and it has to be something that passes the common sense piece with customers. Now, retailers, especially groceries chains that operate on relatively thin margins, typically don't disclose their tactics to lower prices for merchandise. Now, Walmart said earlier today that it's cut prices on about 7,200 items, up more than 20% from a year ago. The world's largest retailer said low prices are helping it gain market share across income levels because that's what this sick economy actually needs. Walmart, now Kroger. This tells us grocery stores are fighting to keep their customer from leaving and trading down or reducing their basket sizes. For the last couple years, consumers absorbed some price increases because they had to. But absorbing does not mean affording. And that's one big reason why consumer pessimism absolutely exploded alongside the weak labor market. A household can keep paying higher prices by draining their savings or using credit cards, maybe delaying purchases everywhere else or reducing their quality and their quantity. And eventually that all shows up. It shows up in Walmart gaining share. It shows up here in Kroger cutting prices. It also shows up at Lowe's seeing pressures on its big ticket DIY stuff. This is a squeeze that's moving through the entire economy. And the problem for retailers is that they're now stuck between two pressures. Their own costs that are still elevated, but customers who are pushing back harder and harder on prices as the labor market gets flatter and flatter beverage. That means margins get squeezed unless companies cut their costs somewhere else. And where do companies usually cut costs? You know the answer. And so does William Henry Beverage. And that brings us to S&P Global and the latest data from their PMIs, especially the services sector, which suggests employment is not crashing. It's not falling off. It's more of the same accelerating forgot how to grow dynamic that we've been tracking for years. It's exactly what explains what's going on with all of these retailers and their customers. The overall services index was still nominally in expansion territory, but in reality, anything below 53 for services is a downturn. And more importantly, it's very clear services momentum has faded badly. It didn't start with the energy shock. As I've been telling you for way too long, the economy was bad late last year heading into this year.

[00:13:02]It was supposed to be picking up, but instead job losses and weakening income potential were eroding what was left of the consumer economy after a summer of artificial spending due to fears over tariff induced price hike. I wonder where everybody got those ideas. Jay Powell. That's why the most important detail in the PMI report was employment.

[00:13:19]As I showed you in the intro, the combined rate of job losses, according to S&P Global, was the worst since August of 2024, back when Japanese carry traders were warning the world about what was coming in jobs and credit markets. And remember, they got that right on both counts. Now, for service sector jobs, S&P says they're being reduced at the second fastest pace since May of 2020, with only April 2024 being worse. And for the same reasons that we're talking about here, starting with energy costs. But you got restaurants, hotels, healthcare, logistics, finance, business services, uh retail, repairs, leisure, personal care. This is the laborintensive part of the economy and the vast majority of it. So when services activity is still expanding, at least nominally, but the employment index weakens, that tells us companies are not responding to demand by hiring aggressively. They're trying to do more with less. They're being pressured.

[00:14:11]They're being cautious. They're uncertain about their own future and future demand. They may still have customers today, but they're not confident enough to add payrolls for tomorrow. That's how labor markets really turn from flat beverage to flatter beverage. That's why the PMI employment component matters so much. It connects directly back to Lowe's, Walmart, and Kroger and a whole bunch more we didn't get into here. If consumers are stretched, businesses see it. If businesses see it, they protect their margins. And if they're protecting their margins, they're going to stop hiring even more than they have been.

[00:14:43]And if they stop hiring, income growth weakens like we've seen. And if income growth weakens enough, consumers get even more stretched. And that is the feedback loop. The core issue is very simple. This is not really about prices.

[00:14:58]It's prices relative to the thing that we've been talking about for years, incomes. If prices go up more than incomes, it's an income problem, not an inflation story. And the income problem comes from the weak flat beverage labor market. And the weak flat beverage labor market by all accounts, by all honest accounts, continues to get worse. Not catastrophically, not fall off a cliff, not this is early 2009, but worse nonetheless. And we're seeing all the symptoms of it. If wages were rising fast enough, households could absorb a lot more. And if job growth was strong enough, families would feel secure. If savings were abundant, consumers could smooth out the shock. But that's not the situation for way, way too many of our households. The lower income consumers been under pressure for a long time.

[00:15:46]These households spend a larger share of their income on necessity. So prices hit them first and hardest since the labor market just hasn't worked for them, pun intended. But the pressure has clearly moved up the income ladder. That's why Walmart is gaining higher income shoppers. That's why more people are trading down and why discretionary categories are increasingly, let's call it soft. So retailers keep using words like cautious, value seeking, selective, and choiceful. Those words are all polite ways of saying the same thing.

[00:16:17]The consumer is running out of room if they haven't run out already. And if the consumer runs out of room, the entire economy changes. A household that cuts back on remodel hurts Lowe's. A household that trades down on groceries pressures Kroger. A household that consolidates spending at Walmart hurts its competitors. And a business that sees softer demand, it's going to stop hiring. And a worker who sees fewer job options spends more carefully. And then the entire process repeats. This is why the economy looks maybe appears so strange to the vast majority of people right now. You got the stock market up here doing this, but for far far too many people, far too many consumers, it's down here doing this. And what we're taught repeatedly over and over again is that those two things should be the same thing. If the stock market's booming, then it must be terrific for everyone in the economy because the economy is booming. It could not be further from the truth. And this is also why we have frowns all over bond market interest rate curves. The Fed could hike its policy over oil prices only to realize it's the consumer economy and labor market that are buckling under pressure. You could have Walmart gaining share and lower income households struggling. You could have services PMI and expansion, at least nominally, and services employment weakening at a rate we haven't seen since 2020. You could have grocery sales that are holding up while grocery customers are absolutely miserable. That's not really a bifurcated economy. It's a sick one that is getting sicker. The top end can still spend and asset owners can still feel okay. Some industries are still going to see growth, but the broad household sector is showing clear signs of fatigue, even clearer than last year, if you can believe it. And that fatigue is visible in exactly the places that you would expect. Home improvement slows because it's discretionary. Discount retail strengthens because people trade down. Grocery chains cut prices because shoppers resist higher food costs. and services firms slow hiring because they don't trust demand. And none of these signals show the economy is catastrophically crashing. But together, what they do show is, as I've been telling you, rising serious fragility.

[00:18:29]So, when you put all the pieces together, the message is pretty clear.

[00:18:32]Lo says big ticket DIY demand is still under pressure. Walmart says lower-income shoppers remain stretched, especially as their tax refund checks are running out, even if the company overall benefits from trading down among higher income shoppers. Kroger, they're cutting prices, not inflation, they're cutting prices because grocery customers are pushing back. And then S&P Global's PMI show that even in services, the employment picture is indeed flat beveraging. That is the consumer hardship story. Not a dramatic collapse overnight. Not a single data point that rings some bright shining recession bell, but a slow squeeze that's spreading, still spreading through household budgets and business decisions. The danger is that everyone focuses on the headline numbers and misses the mechanism underneath.

[00:19:19]Consumers cutting back, retailers fighting for value, businesses protecting their margins. So hiring further disappears, and so does income at the worst possible time, which means consumers cut back yet again. And that's the loop. And right now, Lowe's and Kroger and Walmart, not to mention S&P Global, are telling you that loop is already underway.

[00:19:49]I briefly mentioned the yield curve, money curve, interest rate curve, frowns, but there's a lot of stuff going on there, including some really surprising results. Lower rates at the front end of those curve. Yes, lower rates. That's in the video link below.

[00:20:02]As always, thank you very much for joining me. Huge thank you University members and subscribers. And until next time, take care.