Walmart Executives Say Predicting Consumer Behavior Next Year Will Be Challenging

Top executives at Walmart are finding it difficult to predict consumer behavior going forward, as the economy begins to cool down.

Despite predictions that 2023 would be marked by a recession, the economy has been bolstered by continued wage growth, a strong labor market and resilient consumer spending. The unemployment rate has now come in below 4% for 21 consecutive months and employers have added some 230,000 jobs per month this year.

"I have been surprised that things have been as strong this year, but this has not really been a time period where [consumer pressure] has been because of lack of jobs or lack of job growth," Walmart CFO John David Rainey said at the Morgan Stanley Global Consumer & Retail Conference Wednesday.

Walmart is generally seen as an ideal barometer for consumer sentiment, owing to its nature as a seller of both essential and discretionary products. However, the retail giant has been surprised by "puzzling" behavior, specifically over the last two weeks in October that bucked months of trends, according to Rainey.

He said that those two weeks made executives "sit up in our chair" about the health of consumers and purchasing behaviors. While noting that the company doesn't want to be "alarmist," Rainey added that recent trends have made the company more cautious about consumer behavior.

Walmart's stock sank 8% on Nov. 16, after the company first referenced October spending during its quarterly earnings. Rainey said Walmart feels "very well positioned' and is planning to stick to the long-term plans the company outlined in April.

Walmart CEO Doug McMillon told CNBC on Wednesday that rising credit card balances and shrinking consumer bank accounts raise questions over how much consumers will spend next year. However, the company expects prices to deflate and make its goods cheaper, which could alleviate some of the burden on shoppers' wallets.

Despite Walmart's caution heading into Black Friday and the holiday season, consumers overwhelmingly took advantage of hefty discounts on all kinds of products over Thanksgiving weekend. A record-breaking 200.4 million consumers went shopping over that time period — surpassing expectations by more than 18 million shoppers — and spent roughly $321 on average, according to the National Retail Federation and Prosper Insights & Analytics.

“Customers generally speaking are really sensitive right now," McMillon said Wednesday. "They’re prioritizing their orders and they know there’s a chance that prices might be lower right before Christmas or right after Christmas with clearance, so that’s what we expect to happen.”