Why Walmart's CFO Says American Consumers Are More 'Resilient' Than It May Seem

How are shoppers doing after six weeks of war and the worst oil supply shock in history? Apparently, just fine.

“The consumer continues to be very resilient,” Walmart (WMT) CFO John David Rainey said Wednesday at a JPMorgan conference. “I am probably more constructive on the consumer than what one would glean from reading the headlines,” said Rainey when asked how shoppers were responding to the war in Iran and climbing fuel prices.

Consumers increased their spending by 0.5% in February, a modest increase from January when harsh winter weather weighed on spending, according to data released today. But investors and economists have been concerned for the past six weeks that the war in Iran and the subsequent spike in oil prices will cause Americans, especially low- and middle-income groups that spend more of their income on gas, to tighten their belts.

Rainey acknowledged the war in Iran may impact consumer behavior in the medium-term. But he said the headwinds it has generated for the company and its customers have so far been offset by other factors, including larger-than-expected tax refunds.

Consumer spending accounts for about two-thirds of U.S. GDP, which is why consumers are often referred to as the "engine" of America's economy. The war in Iran has increased concerns that spending could buckle under the pressure of higher fuel prices and a wobbly jobs market.

Rainey’s measured optimism squares with an unexpected uptick in consumer sentiment last month. Consumer confidence rose for the second consecutive month in March, when a "modest improvement in consumers’ views of current conditions outweighed a slight downshift in expectations for the future,” said Dana Peterson, chief economist at the Conference Board.

According to the survey, perceptions of current employment conditions improved last month, but expectations for the labor market and income growth over the next six months declined. Soaring oil prices caused inflation expectations to jump to their highest level since August, and the share of respondents saying they expect interest rates to rise and stocks to fall over the next year increased. (The next major inflation reading, the CPI report for March, is due tomorrow.)

Consumers may be expecting a slowdown in wage growth because it's already happening. Wages were up 4.3% year-over-year in February, one of the slowest rates of growth since the pandemic ended, and disposable income declined. Weaker income growth usually points to a slowdown in consumer spending.

But buoyant asset prices could defray some of the wage slowdown. Home Depot (HD) CFO Richard McPhail said the run-up in home prices during Covid has homeowners on solid financial footing, and that soft demand for large home projects was “not reflective of the health of the customer.” Home Depot, he said, expects consumers will return to home improvement projects once the economic uncertainty of the past year dissipates.

Those expectations were reflected in March’s consumer confidence survey. The share of respondents saying they would or might buy a big-ticket item—like furniture or an appliance—in the next six months declined due to economic uncertainty, but “yes” remained the most common answer.