If the Americans stop shopping, then panic

By James Harding, business editor (THE TIMES, 15/08/07):

The chief executive of Wal-Mart, H Lee Scott, yesterday delivered disturbing news from the aisles of America’s biggest retailer: “It is no secret that many customers are running out of money towards the end of the month,” he said. “The pay-cheque cycle is in fact more pronounced now than it ever has been.”

The collapse of sub-prime lending in the US has, so far, spooked corporate lenders, roiled the global equities markets and mortally wounded a handful of hedge funds.

In broader economic terms, though, its impact has so far been limited. On the eve of the recent ructions in world markets, the International Monetary Fund revised up its forecast for global growth to 5.2 per cent for 2007 and 2008.

But the reports from Bentonville, Arkansas, that the average US shopper is feeling the strain raise the worrying possibility that the credit crisis could yet leach into the real economy. After all, the American consumer remains the Charles Atlas of modern world economic growth: he holds it up. So, Mr Scott’s description of the mood in the malls of America – “US consumers continue to be under difficult pressure economically” – reinforced last month’s retail sales data and knocked more than 100 points off the Dow Jones industrial average in morning trading.

The fact that the sale of groceries at Wal-Mart was up 14 per cent was, itself, a worrying sign. It suggests a surge of Americans seeking out Wal-Mart’s famously low prices because they are so worried about their weekly shopping money that they can no longer afford to go to their regular, fancier supermarket.

The feelgood factor of a rising housing market has gone. Existing home sales are down 12 per cent. The average time homes spend on the market is 8.7 months, the highest level in 15 years. Yesterday, Home Depot, America’s largest home improvement retailer, cited the troubles in the housing market and reported like-for-like sales down by just over 5 per cent. It forecast that demand for its products would be soft for the rest of the year and into 2008. (And, as UBS, the Swiss investment bank showed, it was not the only one ratcheting down earnings expectations for the second half of the year.)

The significance of a couple of American shops, even ones as big as Wal-Mart and Home Depot, can easily be overdone. Only a minority of US consumers are directly affected by the sub-prime crisis. High levels of employment and income growth continue to fuel US appetites.

But for more than a decade, Americans have shopped and the world has prospered. For the international economy, not to mention working American families, payday can’t come soon enough.