Walmart's sharp drop flashes a yellow warning for U.S. consumption

Against the backdrop of the sharp decline in Walmart's share price the previous day, concerns that U.S. consumer momentum is slowing resurfaced. July retail sales fell 0.6% month on month, with notable declines in online sales and automobiles, suggesting that the foundations of U.S. consumption may be changing. This has made the question of whether U.S. consumption will continue to weaken a focus of market attention.

Slower wage growth and a decelerating pace of job creation are weighing on household purchasing power, prompting views that spending priorities may change. Meanwhile, periods of rising gasoline prices due to developments in the Middle East have been cited as another factor weighing on households. July CPI rose 3.4% year on year, while average hourly wage growth slowed to the low 3% range. The decline in purchasing power could affect discretionary spending on clothing, household appliances and entertainment.

While consumption is slowing, capital investment by U.S. companies remains firm, and real GDP in the April-June quarter maintained growth of 1.5% at an annualized quarter-on-quarter rate. Investment in information-processing equipment and intellectual property has been robust, led by AI-related spending, and corporate capital investment increased at an annualized rate of nearly 10% in the first half. As a result, weaker consumption will not necessarily weigh on overall growth immediately, and the growth structure is shifting toward a combination of slower consumption and expanding capital investment.

Slowing inflation could provide support for the stock market, while a decline in core CPI is likely to affect the Federal Reserve's monetary policy outlook. Overall, the U.S. economy is expected to enter an environment in which AI-led capital investment supports growth even as consumption weakens, with economic overheating and price increases being curbed at the same time.