Episode summary
The Walmart Recession Signal Just Hit Its Highest Level Since 2008
Summary
Walmart’s latest earnings are framed as a recession warning because the company’s “Walmart recession signal” has risen to its highest level since the 2008 financial crisis, which the host says historically points to growing stress among low-income consumers. He argues that Walmart CEO comments about shoppers making more obvious trade-offs show customers are trading down or delaying purchases, and that this kind of retrenchment matters because consumer spending is about 70% of economic growth.
The host also highlights Walmart’s inflation experience as evidence of pressure in the broader economy. He says Walmart’s costs to suppliers are running around 1% to 2% a year, below the 3.4% CPI consumers face, because of Walmart’s bargaining power. But he argues the more important signal is what shoppers are seeing at the grocery store, especially higher meat prices.
He cites ground beef averaging $7.14 per pound in July, versus $5.10 in July 2023 and $4.39 in July 2021, and says steak prices have also climbed sharply. In his view, that kind of persistent food inflation can push voters toward change, raise recession risk, and create political openings for populist ideas.
Key takeaways
- Dylan Grice says Walmart’s recession signal has reached its highest level since 2008, which he treats as a serious warning on consumer stress.
- He argues Walmart’s CEO is seeing shoppers make clearer trade-offs, a sign that low-income consumers are starting to pull back.
- Dylan Grice says consumer spending is about 70% of economic growth, so weaker spending can tip the economy into recession.
- He says Walmart’s supplier costs are only rising 1% to 2% a year, below the 3.4% CPI, because Walmart can pressure vendors on pricing.
- He argues rising grocery prices, especially ground beef at $7.14 a pound in July, are feeding anger that could matter for the midterms.
Notable quotes
“the Walmart recession signal has surged to its highest recorded level since the 2008 financial crisis”
“Trade-offs among shoppers are, {quote}, getting a lot more obvious”
“consumer spending is about 70% of economic growth”
“Walmart said that their own inflation costs came in at 1 to 2% a year”
“Ground beef just hit $7 a pound, which is ridiculous”
How the episode opens
Good morning. This is Dylan Jovine with Behind the Markets. Happy Monday.
Today is Monday, August 24th. It is the last week of the month. And today I'd like to talk about Walmart's earnings last week and what we refer to on Wall Street as the Walmart recession signal.
The Walmart recession signal is this kind of secret signal billionaire investors like Jim Paulsen use. And it's really, really good at predicting recessions and midterms cuz we have midterms coming up in November. And this is Walmart's last earnings report before the midterms.
So this is a very, very telling, very important earnings report. Well, the Walmart recession signal has surged to its highest recorded level since the 2008 financial crisis. Very, very big deal.
So what this tells us is that consumers, low-income consumers in particular, are feeling significant financial stress right now. And and you could tell, I mean, the Walmart CEO basically said, "Trade-offs among shoppers are, {quote}, getting a lot more obvious. So he's saying that his customers are really trading down from higher-end things to lower-end things or putting off purchases.
They're making serious trade-offs. So I mean, this is a big deal. And let me tell you something, when consumers are in a lot of pain, they stop spending money.
Never forget, consumer spending is about 70% of economic growth. So when consumers cut back on spending, basically the economy slides into recession. Number one.
Number two, when consumers are in this much pain, what that means usually is that the party in power loses the election, the next election. In this case, that is midterms. Now, what's really interesting also here is Walmart said that their own inflation costs came in at 1 to 2% a year.
Basically, the cost that they pay their suppliers for items that they have on their shelves came in at about 1 to 2%, which is well below the 3.4% consumer price index that we all the rest of the world feels, okay?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- walmart earnings
- consumer spending
- recession signal
- grocery inflation
- midterm politics
Companies and tickers mentioned
- WMT
- Walmart
Watch the episode
Watch “The Walmart Recession Signal Just Hit Its Highest Level Since 2008” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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