“As the fortunes of many Americans go, so goes Walmart, so goes the economy.”
That’s what The Associated Press once noted.
Arguably, Walmart is one of the world’s most important economic indicators.
It’s a proxy for the health of the consumer and the global economy, if you will, an economic bellwether that accounts for nearly 10% of retail spending in the U.S.
So when we saw another quarter of strong growth for the retailer, it was a safe bet that the health of U.S. consumers is still exploding.
In fact, in recent weeks, the company delivered its strongest sales gain in more than eight years. Comparable sales in U.S. locations were up 2.7% in the third quarter, beating analyst expectations. The company earned $1 on share on revenue of $123.2 billion, beating Street estimates for 97 cents on revenue of $121.1 billion.
That means the company has now delivered 13 consecutive quarters of sales growth. Then it boosted its earnings forecast for the year to between $4.38 and $4.46 from $4.30 to $4.40. Better yet, it managed to prove that it might be chipping away at Amazon’s dominance, too. In fact, gross merchandise volume (a measure of goods sold online) rocketed 54% in the quarter.
The numbers are clearly indicative of the health of today’s consumer, which accounts for 70% of the $18.57 trillion U.S. GDP.
And as the fortunes of many Americans improves, so goes Walmart, so goes the economy.
No wonder U.S. GDP has been improving as well as it has.
After seeing 3.1% GDP growth in the second quarter, we saw 3% in the third quarter on the heels of 2.4% growth in consumer spending alone.
That’s not likely to change any time soon either.
In fact, according to U.S. News & World Report:
“We're reasonably well positioned at this point. Labor market conditions are strong. Job conditions are strong. Wage gains are probably not as strong as you might expect at this point in the cycle. But there are some indications of improvement there as well. I think that's a positive, and I think we will see greater upward pressure on income and wages as the competition for skilled labor heats up across the country. So you've got good support there. Consumers remain very confident, as well. So you've got a good mindset and hopefully some additional fuel in growing wages to support that spending. All else being equal, this should be a pretty successful holiday season for the retailers – perhaps a little bit better than last year.”
As long as the consumer remains confident, we’ll see even more growth, and even more opportunities to find profitable investments in The Cheap Investor.