What Walmart, Target, Home Depot and Lowe’s tell us about the economy

How well is the American consumer holding up against sky-high inflation? It depends on whom you ask.

Four major retailers — Walmart, Target, Home Depot and Lowe’s — reported quarterly financial results this week, and they each offered a different perspective on where and how people are spending their money.

Walmart said some of its more price-sensitive customers are beginning to trade down to private-label brands, while Home Depot emphasized the resiliency among its customer base, a sizable percentage of which are professional home builders and contractors.

The reports came after Amazon in late April flashed warning signs for the retail industry when it booked the slowest revenue growth for any quarter since the dot-com bust in 2001 and offered up a bleak forecast.

Still, expectations on Wall Street were higher this week for both Walmart and Target. Analysts and investors didn’t anticipate that the two big-box retailers would take such a massive hit to their profits in the latest period as supply chain costs weighed on sales and unwanted inventory, such as TVs and kitchen appliances, piled up. Walmart closed Tuesday down 11.4%, marking its worst day since October 1987. On Wednesday, Walmart fell another 6% in afternoon trading, while Target was also on pace to have its worst day in 35 years.

Home Depot and Lowe’s, though, have seen more strength among shoppers in recent weeks.

“Our customers are resilient. We are not seeing the sensitivity to that level of inflation that we would have initially expected,” Home Depot CEO Ted Decker said Tuesday on the company’s earnings call. (Shares of both home improvement chains were down more than 5% in Wednesday afternoon trading amid a broader market selloff.)

The mixed commentary from these retailers is in large part due to the fact that Americans are experiencing economic volatility differently, dependent upon their income levels. Companies and consumers are in an uncharted transition period following months of Covid-related lockdown measures that prompted purchases of canned goods, toilet paper and Peloton Bikes to soar. Multiple rounds of stimulus dollars fueled spending on new sneakers and electronics.

But as that money dries up, retailers must navigate their new normal. That includes inflation at 40-year highs, Russia’s war in Ukraine and a still-crippled global supply chain.

“While we’ve experienced high levels of inflation in our international markets over the years, U.S. inflation being this high and moving so quickly, both in food and general merchandise, is unusual,” Walmart Chief Executive Officer Doug McMillon said Tuesday on an earnings conference call.

The results this week could foreshadow trouble for a number of retailers, including Macy’s, Kohl’s, Nordstrom and Gap, which have yet to report results for the first quarter of 2022. These companies that rely on consumers coming inside their stores to splurge on new clothes or…