Forget the Debt Deal… We’re in Trouble

Amanda Heckman|June 3, 2023

Put on your party hat…

And pop the champagne…

The debt ceiling deal is as good as done.

Big whoop.

While Washington pats itself on the back for yet again saving America from a fake crisis of its own making…

The real economy – where real money is at stake – continues to falter.

For most investors I’ve talked to, this earnings season has felt like it has lasted years, not weeks. A mixed bag of results and a market that has traded in a tight range for several months can have that effect.

But as earnings season finally wrapped up… all eyes were on the retail sector. Some big names reported results…

And had some bad news to share.

No One’s Buying

Retail giant Macy’s (M) reported disappointing first quarter results, with earnings plunging by 48%. Comparable sales fell 7.2%, worse than expected. The company slashed its full-year outlook, citing worsening macroeconomic conditions for consumers.

The stock fell by 3% on the news and has seen a year-to-date drop of nearly 36%.

Dollar General (DG), the discount retailer, saw its earnings decline for the first time in three quarters – they slid 2.9% to $2.34 per share. Net sales growth also slowed down. The company said a challenging macroeconomic environment affected consumer spending levels and behaviors. (Sound familiar?)

Dollar General also lowered its sales and earnings forecasts for the year. The stock dropped 20% on the news.

And Target (TGT) did not spare us from bad news, either.

The company called out a market shift in discretionary merchandise such as apparel and home goods. And management took a cautious tone about the all-too-important back-to-school shopping season.

Uh oh.

Consumer spending makes up the largest chunk of our nation’s GDP… and is a major sign of economic health. Where the consumer goes… our economy goes.

And we’re going nowhere good.

Because it’s not just retail that’s having a tough go of it.

The manufacturing sector is suffering too.

No One’s Making

The ISM Manufacturing PMI came in worse than expected, at 46.9. May was the seventh straight month with a reading below 50… which indicates a contraction in the industry.

The PMI tracks the economic health of the manufacturing sector based on new orders, inventory levels, production, supplier deliveries and employment.

Well, in May, new orders shrank at a pace not seen since COVID… inventories increased at their slowest pace in a year and a half… and production eked out only a small gain.

No one’s buying… so no one’s making. That could lead to more supply shocks… and higher prices… and round and round we go.

Meanwhile, Washington celebrates its deal, and the stock market cheers.

But smart investors know the truth… Our economy is faltering. We need to invest accordingly.