Major retailers expected to announce sluggish earnings

Last week Walmart and Home Depot released their earnings report, and the outlook for 2023 was not a pretty one. In the coming days nine major retailers will take to the podium and talk about finances, and do not expect to see any makeup. The next 10 months are expected to be a bumpy ride. Target, Costco, Dollar Tree and Kroger are among the businesses which will release earnings.

A number of different factors are making the outlook leaning negative in terms of consumer spending, including persistent inflation, the possibility of a recession due to interest rate hikes combating inflation, and a shift in spending that favors experiences rather than goods.

On Feb. 24 it was announced that The Personal Consumption Expeditures price index increased 5.4% in January compared to January 2022. Taking out food and energy, the index was up 4.7%. Those numbers mean the Federal Reserve has not done enough to draw down inflation, and that more rate increases will be needed throughout 2023.

A steady rate of spending in 2022 has retailers wondering how it will all play out this year, but most are planning for the worst. Last week the Conference Board said the U.S. economy is headed towards a recession, one that could strike in the first or second quarter. However, the group of economists believe the downturn will be short and shallow. The Conference Board sees domestic demand growth as negative this year.

Related:Walmart U.S. Q4 comps up 8.3% amid strong food sales

Consumer spending spiked in January following mild marks in November and December of 2022. Experts believe a mild winter was partly behind the January surge. A strong labor market over the next few months could keep spending steady, but retailers just are not sure.

More people are choosing to spend their money on experiences like restaurant dining and travel, which is keeping inflation high. That is a substantial shift from a couple of years ago, when consumers were at home during the COVID-19 pandemic.