Weekly Market Update by Retirement Lifestyle Advocates

          There is an old weather adage that says ‘a red sky in morning and sailor take warning, but a red sky at night is a sailor’s delight”.

          More often than not, this adage holds true.  Just the other morning, prior to a thunderstorm rolling through, I noted that the sky was red as the sun was rising.

          It’s a simple yet reasonably accurate forecasting tool.

          There are also tools that are reasonably accurate when predicting recessions and economic downturns.  One of those tools is consumer spending.  When consumers are spending money, it’s a good sign for the US economy which is heavily dependent on consumer spending. 

          On the other hand, when consumer spending slows, it’s bad news for the US economy.

          Despite some of the manipulated data that may try to convince you otherwise, consumer spending is slowing.  Inflation is taking its toll, especially on lower-income Americans.

          And, with the Fed now stating that we can expect interest rate cuts in the near future, this problem will only get worse.

          Dollar General, a retail store that caters to lower-income and bargain-conscious consumers, recently reported its worst day on record.  This from “The Gateway Pundit{. (Source:  https://www.thegatewaypundit.com/2024/08/dollar-general-suffers-worst-day-record-ceo-warns/):

Dollar General suffered a record one-day drop as the company’s stock tanked amid a warning about the struggling U.S. consumer.

The Thursday trading day marked a slaughter for Dollar General, seeing the stock crater by an eye-watering 32.01 percent, according to Barron’s.

It was the company’s worst one-day decline in history, smashing the previous record drop of 19.5 percent set on June 1, 2023. Dollar General has been publicly traded since 2009.

Dollar General is no small player.

According to the Financial Times, the Tennessee-based company has over 20,000 locations across all but two states.

The retailer’s painful decline hints at larger troubles with consumers and the American economy.

Dollar General’s core customers are typically from households that bring in less than $35,000.

Todd Vasos, chief executive of the Dollar Store chain, said that group of people is feeling more “financially constrained” than ever.

“The majority of them state that they feel worse off financially than they were six months ago as higher prices, softer employment levels and increased borrowing costs have negatively impacted low-income consumer sentiment,” Vasos said in a Thursday earnings call.

The higher prices Vasos mentioned are in large part due to inflation — a force that has raised prices on goods across the board under the administration of President Joe Biden and his upstart deputy Vice President Kamala Harris.

Inflation works as a double-edged sword against consumers, who have to face higher prices with a U.S. dollar that is rapidly losing its purchasing power at home and abroad.

Rural towns and poorer areas, where Dollar General concentrates its locations, are among those places most affected by economic downturns.

Under this hostile environment, Dollar General’s CFO Kelly Dilts said the store’s typical customer has “started to run out of money by the end of the month,” Financial Times reported.

Compounding the problems for Dollar General are societal issues all stores are now facing: chiefly, shoplifting and other forms of theft.

Dubbed “shrink” in the retail industry, unscrupulous customers’ constant five-finger discounts are a slow drain on any location targeted. Businesses that opt for private security also have to consider increased labor costs from this and the possibility of lawsuits or destructive confrontations.

Some stores have invented novel and radical ways to reduce theft, including a one-on-one shopping experience where each customer is guided by an employee.

Obviously, these strategies may help to lower theft, but inevitably lead to a less-than-ideal atmosphere for average consumers.

          Walmart and Target both report that the retail chains are attracting wealthier clients than in the past as higher-income consumers are becoming more price-conscious.  This from “Market Watch”. (Source:  https://www.msn.com/en-us/money/personalfinance/low-income-consumers-are-still-struggling-now-the-cracks-are-starting-to-show-for-higher-income-ones-survey-finds/ar-AA1pshLl)

Mizuho said Monday its August consumer survey found low-income consumers, those who earn less than $50K a year and account for 22% of total U.S. household spending, continued to struggle. The cracks were also starting to show for consumers in higher brackets.

The middle-income cohort, for example, or people who earn $50K to $100K a year and account for 25% of all household spending, remained solid financially and continued to spend.

“But strikingly high numbers report elevated credit balances and some signs for potentially tighter spending through year-end (restaurants, electronics, and even children/pet care); risks have likely risen from stock market volatility (wealth effect) and election season uncertainty (tax policy, etc.),” analyst John Baumgartner wrote in a note to clients.

The findings align with comments from the latest earnings from big-box retailers, including Walmart Inc. and Target Corp. The companies have both reported they are increasingly attracting wealthier customers as shoppers become more frugal during the current high inflationary period.

The survey found some 60% of those polled reduced restaurant spending compared with six months ago, a survey record. And 60% plan to curtail restaurant spending in the next three to six months absent some improvement in inflation readings.

More higher-income consumers expressed reluctance to spend, suggesting continued downside risk for restaurant channel traffic, but good news for packaged-food companies that are expected to benefit from more dining at home, said Baumgartner.

            This points to recession and likely a lower stock market at some future point.  Warren Buffet might agree.  After dumping a good share of Berkshire Hathaway’s Apple stock, Buffett sold more than 129 million shares of Bank of America over the past six weeks.  (Source:  https://www.zerohedge.com/markets/warren-buffett-continues-dumping-bofa-shares).

          Hang on.  This could get bumpy.

          This week’s RLA radio program features an interview that I did with John Rubino, co-author of “The Money Bubble: What to Do Before It Pops.”  John is also a prolific writer and commentator on his substack newsletter.   

          The radio program is posted and available now by clicking on the "Podcast" tab at the top of this page.  The weekly Headline Roundup newscast is also posted there.  If you haven’t yet done so, check out the free resources available on the website.

“By continuing a process of inflation, a government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

                                                      -John Maynard Keynes