Retailers warn Wall Street to expect less shopping this year

By CNN Newsource

Published March 1, 2024 6:26 AM

Analysis by Krystal Hur, CNN

New York (CNN) — A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.

Companies have warned for months that while American consumers have stayed resilient against a backdrop of sky-high interest rates, they’re still feeling the pinch from a tough economic environment. Now, retailers are doubling down on that warning.

The US economy avoided a highly anticipated recession in 2023, aided by continued consumer spending even as the Federal Reserve brought interest rates to a 22-year high and elevated prices ate into Americans’ savings.

Recent economic data has confirmed the American consumer’s shocking resiliency. The second estimate for the fourth quarter of 2023, released on Wednesday, revealed that the broadest measure of economic output rose at an annual pace of 3.2%. That robust growth was driven in part by an uptick in consumer spending for both goods and services, according to the Commerce Department.

But a look at some of the United States’s biggest retailers tells a different story. Guidance from corporate earnings reported this week suggest that the companies that have their fingers on the pulse of the economy expect consumers to tighten their purse strings this year.

Here’s what three of them had to say.

Lowe’s: The home improvement giant projected total sales of $84 billion to $85 billion for 2024 in fourth-quarter results reported on Tuesday. That’s below the $86.4 billion in sales it raked in during 2023.

“While there is increased confidence of a soft landing, there’s still a lot of speculation on the timing of anticipated interest rate cuts and the pace of slowing inflation,” said Marvin Ellison, Lowe’s CEO, in the company’s post-earnings call. “We expect DIY demand to remain under pressure.”

Macy’s: The department store chain predicted net sales between $22.2 billion and $22.9 billion for the current fiscal year, lower than the $23.1 billion in net sales it generated in 2023.

Macy’s also said it will shutter 150 underperforming stores over the next few years as part of its strategy to entice wealthier shoppers to make up for its shrinking middle-class customer base.

“Inflation has slowed, but so has labor and wage growth. As such, we expect our consumer to remain under pressure,” chief executive Tony Spring said in a Tuesday call with analysts.

Best Buy: The company projected revenue between $41.3 billion and $42.6 billion for the 2025 fiscal year, down from the $43.5 billion revenue it generated in the fiscal 2024 year.

CEO Corie Barry outlined a number of challenges weighing on Best Buy, including consumers’ prioritization of food and lodging as prices stay high, the continued shift to spending on experiences over goods and the stagnant housing market.

The factors together have been “a heavy weight on the industry,” Barry said in a Thursday call with analysts.

India’s economy ended 2023 ‘with a bang’

The world’s fastest-growing major economy is living up to its billing, report my colleagues Diksha Madhok and Hanna Ziady.

Gross domestic product in India surged 8.4% in the final three months of 2023 compared with a year prior, up from growth of 7.6% in the June-to-September period, the country’s statistics office said Thursday.

The latest rise is much stronger than analysts expected and means India’s economy “ended last year with a bang,” Thamashi De Silva, assistant India economist at Capital Economics, wrote in a note.

“That pace of growth was the strongest among major economies last quarter,” she said.

The data will further bolster optimism over the economic prospects of the world’s most populous nation. According to a report Wednesday from real estate consultancy Knight Frank, the number of ultra-rich Indians — those with a net worth of at least $30 million — will rise 50% over the five years to 2028, the biggest increase globally.

Buoyed by the strong GDP numbers, India’s stock markets hit new all time highs on Friday. Indian investors have been driving shares steadily higher over the past 12 months, pushing the combined value of companies listed on India’s exchanges above $4 trillion late last year.

Mortgage rates edge closer to 7%, dampening start of spring homebuying season

US mortgage rates climbed for the fourth week in a row, inching closer to 7% just as peak homebuying season gets underway, reports my colleague Anna Bahney.

The 30-year fixed-rate mortgage averaged 6.94% in the week ending February 29, up from 6.90% the previous week, according to data from Freddie Mac released Thursday. A year ago, the average 30-year fixed-rate was 6.65%.

“Mortgage rates continued their ascent this week, reaching a two-month high and flirting with 7% yet again,” said Sam Khater, Freddie Mac’s chief economist, in a statement.

Khater said the rise in rates during February has dampened already tentative homebuyer momentum heading into the spring.

Since reaching a 20-year high of 7.79% in October, mortgage rates have been slowly falling. The average rate hovered at around 6.6% for more than a month, which brought improved affordability for homebuyers who have been struggling in one of the least affordable markets in decades.

But in recent weeks, as the market absorbs expectations that the Federal Reserve will not cut its benchmark lending rate until later this year, mortgage rates have trended higher.