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Updated (7:45am EST): Walmart beat expectations in its latest earnings report, but offered a wary outlook for the first part of this year. Safeway also reported better-than-expected earnings Thursday. The two companies have more in common than one might think. Groceries now make up more than half Walmart’s American sales.
Today’s numbers look back, but the worry is about what’s ahead. There’s been a lot of speculation about how this year’s increase in the payroll tax will impact consumer spending, but other factors will also come into play.
It’s clear some Walmart higher-ups are worried about tightwad consumers. Bloomberg obtained leaked e-mails where a top executive called February sales “a total disaster.” Low-income shoppers are especially sensitive to the payroll tax.
But macroeconomists, true to their name, think about the big picture. They point to other happenings that could offset skimpier paychecks.
“There was a minimum wage increase in 10 states, so that would help balance it out,” says Susan Sterne, president of Economic Analysis Associates.
Plus, there’s hiring happening, which means some people are getting brand new paychecks, putting more money in their pockets.
Grocery industry watchers pay close attention to gas prices, which are currently on the rise. Many large grocery stores now have filling stations on site and offer shoppers gas deals through their loyalty programs, placing gas prices at top of mind as consumers push their carts through the aisles.
“That kind of puts it right in the customer’s face,” says Meg Major, editorial director for the trade magazine Progressive Grocer.
People will still buy groceries. The question is whether seeing higher gas prices will keep shoppers from grabbing something extra or upgrading to a higher-end item. Stores live or die on those impulse buys — items that aren’t not on the grocery list.
“Any form of discretionary purchase with every consumer possible is a victory,” Major says.
And victory for these retailers is riding on much more than the payroll tax increase.