Is Wal-Mart an Economic Weathervane for Consumers?

It’s that time of year again, when American consumers enter the liminal zone between Thanksgiving and Christmas, with too little left to spend and too much left to buy.Injured Piggy Bank WIth Crutches

At least, that’s the traditional scenario for the first few weeks of December. Consumers this year are uniquely burdened with economic headwinds (more like trade winds at this point) that are guiding their ships straight toward a fiscal cliff that has become synonymous with a new recession.

Are you worried about the Fiscal Cliff? Click here to get our Gold & Silver Premium Newsletter OVER 50% OFF now!

Consensus between Wall Street, Washington, and Main Street seems to have been a nebulous disbelief in the reality of going over the edge. Politicians sparred, business leaders said their piece, and consumers tightened their belts. No surprises here, but as the clock keeps ticking (T minus 19 days), it seems like all that’s going on is more sparring, more talking, and more belt tightening.

Discount retailers have been a favorite group to track through the sluggish economy. Typically a strong performer when consumers become highly conscious of their budgets, Dollar General Corporation (NYSE:DG) made headlines on Tuesday when it effectively shot itself in the foot. The company closed down over 7 percent, despite posting record third-quarter performance, because of its gloomy expectations for the future.

“I think the customer is fatigued, they’re tired, they’re scared,” said chairman and CEO  Rick Dreiling on a conference call. “Every time you turn on the television there’s a bunch of guys in suits who are frowning, telling you that the world’s going to go over the fiscal cliff.”

Dreiling’s rainy-day perspective seems to be contagious, as investors pull their money out of discount retailers across the board…

Shares of Family Dollar Stores (NYSE:FDO) closed down 8.36 percent on Tuesday, and shares of Dollar Tree (NASDAQ:DLTR) closed down 3.6 percent, adding to three consecutive days of losses.

And now, to round out the gloom and doom that retailers face, Wal-Mart Stores Inc. (NYSE:WMT) closed down 2.75 percent on Wednesday, chasing a statement made by CEO Mike Duke on Tuesday night at the Council of Foreign Relations. Duke explained that before the presidential election in November, only 25 percent of consumers knew what the term “fiscal cliff” meant.

“One week after the election it was up to 75 percent,” said Duke, according to Reuters.  He added that 15 percent of those consumers said the conversation in Washington would affect their Christmas spending behavior.

The news is obviously not great for an economy that is fueled by consumer spending and an industry that depends on holiday sales for an out-sized portion of its annual revenue.

But this should hardly come as a surprise. The folks at the National Retail Federation became bad-news bears in the middle of November, when they released a statement urging leaders in Washington to find a solution to the fiscal cliff by Thanksgiving. An NRF survey indicated that two-thirds of shoppers said the fiscal cliff and other economic concerns would affect their holiday spending.

Given the numbers from Black Friday and Cyber Monday, a dramatic “retail crisis” doesn’t seem to be in the mix this holiday season. But it is clear that fiscal cliff concerns are building as the deadline approaches, and market participants seem to be entering survival mode.

Don’t Miss: Wal-Mart in India: Bribery, Illegal Investment, and Lobbying, Oh My!