An indicator associated with Walmart, one of the most iconic economic stalwarts in the US, is raising concerns about a potential recession, as reported by a Wall Street expert.
Jim Paulsen, a seasoned economist and former chief investment strategist of the Leuthold Group, has been tracking the Walmart Recession Signal (WRS). This signal compares Walmart’s stock price to a group of luxury stocks, with the theory that a higher reading indicates an increased risk of a sharp economic downturn.
The recent data shows that the WRS is at its highest level since the Global Financial Crisis almost two decades ago. The underlying logic behind this signal is that as the economy falters, consumers tend to shift towards budget retailers like Walmart. Therefore, an uptick in the Walmart Recession Signal could signify an impending downturn or a significant economic slowdown, Paulsen explained.
Walmart is typically seen as a gauge for the overall health of US consumers and has excelled in the past year, with its stock soaring 40% in the last 12 months. This success is attributed to consumers seeking to save money amid rising inflation concerns.
Paulsen highlighted that the Walmart Recession Signal has surged leading up to the past four US recessions, with a 28 basis point increase so far this year, possibly due to economic uncertainties surrounding the Iran conflict.
“The WRS is increasingly signaling caution about the US economy,” Paulsen stated. While he believes a recession may be avoided this year, he is growing more convinced that a notable economic slowdown is underway.
Paulsen outlined several concerns about the US economy based on the recent rise in the WRS, including pressures on lower- and middle-income consumers, private credit issues, and potential job market challenges.
Despite some areas of strength in the US economy, Paulsen pointed out vulnerabilities like slowing hiring, housing activity, and consumer spending. He speculated that a significant economic weakening could become more evident in the coming months, particularly if the Iran conflict is swiftly resolved.
Recession warnings have become more prominent as the Iran war persists. Wall Street firms like Goldman Sachs and BCA Research have raised their recession probabilities for the next 12 months, largely due to the ripple effects of the recent oil price surge.
