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Dollar General stock just had one of the worst days ever on wall street. And that means trouble for Main Street.
Shares of the discount retailer fell 20% on Thursday after the company cut its earnings guidance for the year. Dollar General now expects sales to increase between 1% and 2% (compared to a previous forecast by ). ~3% and expects earnings to be down 8% year-on-year.
This news is a huge warning sign for the entire US economy.
Put simply, we already knew that American consumers were doing poorly because results from other retailers — including Macy’s, Costco, and Target — showed consumers of consumer goods were falling. But Dollar General’s worse-than-expected results point to a more worrying reality for the country’s consumer-driven economy. When high- and middle-income shoppers feel overwhelmed, they tend to shift spending — buying chicken instead of beef, for example, or buying their homewares at Walmart instead of West Elm.
When Dollar General’s core customers feel strained, they withdraw entirely.
“Unfortunately, our customers are saying they have to rely more on grocery banks, savings banks and credit cards,” CEO Jeff Owen said in a call to analysts Thursday.
The company says its “core customer” makes less than $40,000 a year. Owen also said he believes customers were surprised by the reduced tax refunds and reduced SN` benefits, “which added to the inflationary pressures they were already facing.”
Dollar General’s results are in line with those of competitor Dollar Tree, which also underperformed investors last week and lowered its earnings outlook for the year.
Economists have not yet declared a recession in the US – That appointment has to be made by a panel of eight bureaucrats at the National Bureau of Economic Research, some of whom you’ve never heard of, and they won’t speak out until the downturn has already begun. That means economists and commentators have had to play a recession guessing game over the past year and a half, analyzing every earnings report and unemployment data point to predict when the downturn will hit, how long it will last, and how bad it will be.
In the process, two powerful forces have defied predictions that the economy was about to stumble: consumer spending (by far the biggest driver of the US economy) and the strongest job market in half a century.
Consumers propelled the economy through the worst of the pandemic and through a painful recovery year marked by the twin burdens of high inflation and high interest rates.
There’s only so much you can do.
People are now packing up their credit card debt and turning their attention back to basic necessities.
“The light-hearted shopping spree has been replaced by more focused missions where people set budgets and are less willing to deviate from them,” said Neil Saunders, retail analyst at GlobalData, in a note to clients last month.
Dollar General’s poor earnings also underscore the extreme disparity in the way inflation is felt between high- and low-income shoppers. In April, US retail sales rose year over year, but most of the gains came from spending on autos, restaurants, concert tickets, and travel. While this is all good for the economy, it tends to mask the struggle of poorer people who are simply trying to make ends meet.
The labor market, meanwhile, remains robust even after ten consecutive rate hikes. Even as monthly job gains slow and layoffs increase, it’s not clear whether they will return to pre-pandemic normal or slip further and usher in a recession. (Economists will get an update on the jobs situation on Friday when the US releases its closely-watched monthly jobs report for May.)
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