MORE RETAILER PRICE CUTS

Walgreens (WBA) has joined the growing list of retailers that have announced sweeping price cuts for their products. The list also includes Walmart, Target, Amazon, etc. All of them cite the need to increase customers traffic. Presumably the increase in traffic will also increase sales and translate to higher profits. Let's hope so. The attitude of current shoppers is almost defensive in nature. Impulse shopping has been replaced by planned shopping for specific items and includes conscious price comparisons with competing vendors and online searches.

The actions of shoppers and the response of retailers are indicative of a weakening economy and reinforce the validity of an earlier statement in my article about Target's announcement a couple of weeks ago...

"Target's announcement and others that may follow are more likely indicative of broadly slowing economic activity that could worsen further before relief can be expected." 

For retailers to fall in line so quickly and with so little resistance to the pressure to cut prices tells us two things: 1) Prices were too high; and 2) Things are probably worse than we might imagine.

PROBLEMS IN OTHER INDUSTRIES

Other industries are affected by the slowdown in economic activity, too. Real estate, both residential and commercial, has been ill for some time. Residential real estate suffers from a dearth of transactions. Recent decisions regarding sales commissions have added to the pain. The landscape for commercial real estate is littered with empty locations and defaults.

In the labor industry, increases in the employment rate are the result of part-time job placements and a reduction in the unemployment ranks by those who stop looking. Employers say they cannot find dependable employees and complain about staffing issues. Those are not signs of healthy job market.

Orders for durable goods have fallen off a cliff. See the chart (source)below...

Durable Goods Orders - January 2022-April 2024

(Click on image to enlarge)

As sharp as the 4th quarter 2023 drop in durable goods orders is, it looks as though it might have rebounded this year from a level that maintains an overall upward bias to the numbers. Still, there is a lot of volatility to the numbers, especially beginning in the middle of last year.

When we adjust the numbers for inflation, however, any optimism evaporates quickly. Below is the same chart with the numbers adjusted for inflation...

Durable Goods Orders (inflation-adjusted) January 2022-April 2024

(Click on image to enlarge)

There is no increase in durable goods orders but, rather, a steep decline in real terms. People are spending more to buy durable goods (shown on the first chart) but are getting less for their money. The effects of inflation show us that real (inflation-adjusted) durable goods orders are in a pronounced decline that dates back several years.

WHAT TO EXPECT 

As economic activity continues to slow, an official designation of recession is more likely; not that that means much. The slowdown and weakness is still there whether someone labels it a recession officially or not. A bigger concern is the possibility that the weakness will accelerate and evolve into something worse. Should that occur, the Fed might not (probably won't) be able to stop the damage to the economy or turn things around; regardless of potential changes in interest rate policy.

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