Lowe’s, Home Depot: Leading Indicators of Weakened Confidence

Photograph by Scott Olson/Getty Images

A Home Depot in Kitty Hawk, North Carolina.

Consumer confidence may be even softer than we think.

Analysts at Cleveland Research said today that Lowe’s and Home Depot stores are probably “a bit behind expectations to this point” in the second quarter. They’re seeing softer order rates and inventory targets going down in the past month.

That means summer isn’t shaping up to be great for the home-improvement business, even after Home Depot and Lowe’s already trimmed their forecasts in May.

So far this year, the chains have proven to be a leading indicator on consumer sentiment. And because consumer spending accounts for about 70 percent of the U.S. economy, this report bares considering.

On May 15, Home Depot said sales this year will miss analysts’ projections. Same-store sales slowed in every month of the first quarter, rising 5.4 percent in April after 6 percent growth in March and 6.2 percent in February.

On May 21, Lowe’s posted sales that trailed estimates and cut its full-year profit forecast. Sales by stores open at least a year increased 2.6 percent in the quarter, trailing the gain of 4.2 percent projected by analysts.

On May 29, the Conference Board reported an unexpected drop in consumer confidence. Sentiment was the lowest in four months, and then the May numbers were revised lower with the June data.

They are among a handful of retailers that have “off quarters” and don’t report earnings at the same time as the rest of Corporate America every quarter.

So the stirrings from Cleveland Research now won’t be proven right or wrong for another month.

But the research raises concern going into Friday’s jobs report that hiring may be slower than we know and households may be retrenching even further.





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