Warning Signs

Ominous Walmart signal that predicted last FOUR downturns flashes red again

A little-known recession warning tied to Walmart is flashing red again - and it’s spooked economists for a worrying reason.

The same signal has correctly predicted the last four major US downturns.

When shoppers start ditching designer brands and trading down to cheaper stores like Walmart, it’s often a sign that financial pressure is building beneath the surface.

Jim Paulsen, a veteran economist for more than 40 years, tracks what he calls a 'Walmart Recession Signal,' which compares Walmart stock to that of luxury fashion retailers.

As shoppers flock towards cheaper stores like Walmart and away from designer brands, the signal 'flashes red,' pointing to a recession looming nearby.

The indicator has surged to its highest level since the 2008 financial crisis. That suggests Americans are tightening their belts as fears of job losses and a recession grow.

This year alone, the indicator has jumped 28 percentage points over rising prices and the war in Iran rattled consumers, Dr Paulsen said.

Instead of splurging on premium brands, more shoppers are switching to discount essentials – a classic early warning sign that confidence is slipping.

Walmart is a major player in the discounted retail space, with over 5,000 'supercenters' in the United States alone.

As a result, Dr Paulson said choosing this chain, as opposed to Target or Walgreens, helps provide an accurate picture of lower and middle class spending habits.

'Walmart specifically caters to the lower income distribution and thereby could provide an early read on a burgeoning recession,' Dr Paulsen said.

However, according to Dr Paulsen, a sharp economic downturn shouldn't be an immediate concern for shoppers.

'My guess is the economy avoids a recession this year, but I am becoming more convinced that a significant US economic slowdown is unfolding,' Dr Paulsen wrote on Substack. He said that could mean the Federal Reserve needs to cut interest rates to boost the economy.

Retail analyst Neil Saunders of GlobalData agreed that Americans remain under pressure from higher prices, including recent gas hikes.

'This has made a lot of people look to value chains like Walmart to help them make their dollars go further,' he told the Daily Mail.

He added that middle-income consumers are 'trading away' luxury goods out of fear of spending too much.

'I would not say these are signs of an impending recession as they have actually been present for a while, but they are signs of a consumer that’s trying to cope with a cost of living crisis,' he said.

Economist Michael Szanto told the Daily Mail 'it's too early at this point' to assume that there will be a recession, 'though it's certainly possible.'

With new CEO Josh Furner in charge, Walmart has plans to upgrade the in-store experience for its growing customer base.

New digital shelf labels, which update automatically each night, will replace the old pricing system within the next year - and have sparked fears of AI-powered surge pricing.

Walmart says digital shelf label prices are still set by humans despite the updates, as around 2,300 US stores are already using the digital system.