American shoppers are still "shopping for things they want, not just what they need," the head of the country's biggest retailer said yesterday.
Eduardo Castro-Wright, chief executive of Wal-Mart's US division, said that customer spending is holding up despite the pressures of the mortgage crisis, soaring petrol prices and job insecurity.
His comments came on the same day that official retail sales figures for April showed US consumers spent more than expected on items like furniture and DIY materials. Commerce Department data showed a 0.2 per cent decline in retail sales on the previous month but, stripping out car sales, spending was up 0.5 per cent, compared with a consensus forecast of less than half that.
Across the globe, nervous investors are watching for clues as to the strength of the US consumer, traditionally a major prop to economic growth. A collapse in spending could hurt even powerhouse emerging economies such as China, because so much of their manufactured goods are sold into the US.
The latest figures suggested that consumers are reacting to high petrol prices by shunning expensive gas-guzzling vehicles and cutting back on driving, but not so far by eschewing everyday purchases.
And – with $150bn in tax rebates still being mailed to taxpayers as part of a government stimulus package – they raised hopes that the US economy may yet escape a full-blown recession.
"Numbers like this warn us that the US may be avoiding a recession by a hair's breadth," said John Lonksi, chief economist at Moody's Investors Service, but he added that gas prices and a flat labour market made it a "daunting environment" for the US consumer. "It would be a big mistake to read these numbers as a bottom for US economic activity. For example, you can't just shrug off the auto sales decline. The car industry is an important industry."
There was evidence in yesterday's data that shoppers are trading down from expensive department stores to low-cost retailers such as Wal-Mart and Target. TJX, which owns the TJ Maxx and TK Maxx discount chains, posted a 20 per cent surge in quarterly profit yesterday, and Wal-Mart's own like-for-like US sales figures for the first quarter of the year were up 2.9 per cent.
Mr Eduardo-Wright said Wal-Mart was showing growth in shopper numbers "for the first time in a very long time" and quarterly profit across the group grew 7 per cent, better than forecast. The company, though, issued downbeat forecasts for the coming months, saying that low-income Americans were increasingly running out of money between paychecks.
Kevin Logan, senior US economist at Dresdner Kleinwort, said that the 0.2 per cent month-on-month decline in retail sales, which equated to a 2.0 per cent gain on the same period last year, was still much weaker than normal. The year-over-year gain had more to do with price inflation than with additional purchases by consumers, he said.
"Retail sales figures can be pretty volatile," he warned. "The increases in furniture and building materials may not be a real trend, but just some catch-up after people postponed purchases."
Asda bucks gloom with like-for-like sales spurt
Asda reported like-for-like sales up by 5 per cent in the first quarter yesterday, adding the Wal-Mart-owned chain's name to the list of supermarkets shrugging off the gloom in the wider retail sector.
With many retail companies squeezed between rising commodity prices and slowing consumer spending, 2008 has seen profits warnings from areas as diverse as electronics, furniture and clothing. But so far, food continues to perform well. National retail figures for April showed grocery sales picking up again after a slow March, but overall sales dropped for the second consecutive month. Tesco published record pre-tax profits last month, up 12 per cent to £2.84bn, and it plans to hire another 30,000 staff across its global operations.
Asda outperformed the market for the eighth consecutive quarter in the first three months of 2008, and grew its market share by 0.3 per cent, the company said yesterday. The "Extra Special" premium brand own label saw sales rise 30 per cent.
"Asda has continued to win in the UK – delivering a strong first quarter, with 30 basis points of market share growth, despite a challenging economic environment," Mike Duke, the vice- chairman of Wal-Mart, said. "Although we expect the UK to remain a challenging economy and retail market over the rest of the year, we believe our strong pricing agenda, backed by a cost-reduction programme, leaves us well positioned to continue to make market share there."
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