Home Depot Issues A Warning About The Economy

According to Home Depot, people are dissatisfied with the economy and are spending less on significant home improvement projects.

The home improvement behemoth, a barometer of consumer spending and the housing market has cut its sales forecast for the year. It stated that clients were spending less on home renovation projects due to increasing borrowing rates and concerns that the economy needed to be improved.

Home Depot | CNN Image

Home Depot Issues A Warning About The Economy

Home Depot’s business is strongly related to the housing market, and high interest rates are slowing housing turnover and preventing buyers from financing greater projects.

“During the quarter, higher interest rates and greater macroeconomic uncertainty weighed on consumer demand more broadly, resulting in lower spending on home improvement projects,” Home Depot CEO Ted Decker stated in a news release.

Home Depot’s revenue at locations operational for at least a year fell by 3.6% last quarter, the company reported on Tuesday. It predicts sales at stores open at least 12 months to dip 3% to 4% this year compared to the previous year. That is down from its previous projection that sales would decline by around 1% using that metric.

Consumer demand for home improvement has been down for about a year, and the company says the situation has mostly stayed the same. Decker expressed optimism, stating that “the underlying long-term fundamentals supporting home improvement demand are strong.”

Home Depot (HD) stock declined less than 1% on Tuesday.

During the pandemic, the company’s revenues skyrocketed as millions spent more time at home, renovating and working on other home improvement projects. However, many customers have now turned away from purchasing tangible products in favor of experiences such as travel and concerts; others have reduced their overall expenditure. This move has harmed Home Depot. McDonald’s, Starbucks, Disney, and other consumer brands have also seen a consumer backlash.

Home Depot officials stated on an earnings call that consumers were healthy but undertaking fewer significant projects. This resulted in slow sales of building supplies, timber, and construction-related equipment.

Home prices are soaring across the country, and demand for housing continues to outstrip supply in most markets.

According to the most recent National Association of Realtors data, the median price of a previously owned property in the United States increased to $426,900 in June, up 4.1% from the previous year.

Home Depot Issues A Warning About The Economy

Mortgage rates, on the other hand, have progressively declined in recent weeks. They peaked at 7.22% in early May 2024, down from a two-decade peak reached late last year.

This year, Home Depot completed its largest acquisition, investing $18.3 billion in SRS Distribution, a massive building-projects supplier with major customers including professional roofers, landscapers, and pool contractors.

The company receives almost half its sales from housing experts, who spend more in stores than do-it-yourself homeowners on lawnmowers and power tools. Both Home Depot and Lowe’s have been working to gain more professional customers.

SOURCE | CNN