Stan and Pete,
What jumps out at me is that a 3.2% gain in revenues seems to barely keep pace with inflation. Based on the March numbers, core inflation was 2.4% and inflation in food and beverages was 4.4%. (Wal-Mart's release excludes fuel sales but includes grocery sales.) So if this were taken as a sign of strength in the economy, I think it's not a very positive sign. As Pete notes, we should consider the retail sector as a whole and just be patient to get the numbers as they become available.
Your instincts are right on. Our incomes aren't growing very much, but prices are going up, particularly for energy and food, so consumers are shifting away from luxury goods and spending more at Wal-Mart for necessities. This is an example of income effects being partially offset by price effects. Consumers are shifting their consumption patterns to keep the highest possible standard of living in the face of slowing income growth. In other words, consumers are getting squeezed.
Another way to see this is to examine retail sales. The latest Census Bureau report shows overall retail sales have declined slightly in February and March from what they were in January. Looking at the detail shows auto sales declined the most. Auto purchases are a mixture of luxury and necessity, but they're more postponable than basic necessities. When income growth slows, consumers put off auto purchases if they can.
Andrew, Pete...Help me out here.
When Wal-Mart this week reported a better-than-expected 3.2 percent increase in same-store sales, many on Wall Street said it was a sign that consumer spending was picking up.
That doesn't seem right to me.
My impression is that Wal-Mart is the shopping equivalent of what economist's call an "inferior good." This is not a qualitative comment on the store or what it sells but rather an economic observation: people are more likely to shop more often at discounters like Wal-Mart when times are tough and they're watching their pennies.
(ironically, the example that was used when I first learned the inferior goods concept was that consumers would shift from meat to potatoes and rice when their income fell. In light of the current increase in the price of rice, my guess is that it's no longer included on this list.)
Diane Lim Rogers, a long-time budget watcher in Washington, D.C. with one of the best fiscal backgrounds in town, is launching her own blog tomorrow called EconomistMom. It is launching, appropriately enough, on Mother's Day.
And not a moment too soon. As the chief economist at the House Budget Committee, Diane couldn't participate in the debate as personally as we needed her to do. Now, as the chief economist at The Concord Coalition and someone with her own blog, she'll be able to added another rational voice to a discussion that needs as many as possible.
The editorial page of my local paper defends my profession against the snide remarks of Senator Clinton. We can use all the help we can get, but in the process, the paper misses why economists are so squarely against the gas tax holiday:
Speaking of sophistry, it's perhaps not surprising that Clinton would want to change the subject when challenged about her gas tax “holiday” instead of defending it on the merits. After all, suspending the tax for three months would save the average consumer a paltry $30, while doing absolutely nothing to curb demand for oil. It would also deprive the federal highway trust fund of roughly $9 billion for badly needed road and bridge maintenance and repair if Clinton's proposal to make up that amount through a new tax on oil company profits failed to become law.