Lowes (LOW) came out with good less bad earnings recently and their stock rallied sharply. Home Depot (HD) came out with less bad good earnings and their stock didn’t rally. Given the cliff dive of home builders, housing starts, remodeling/renovation and the like how is it that HD and LOW have done as well (or not as bad) as they have?
As a street level economist I have long followed national economic statistics. Over the past 40 years or so I have noted with some amusement that the self-described independent economic decisions my wife and I have made seem to show up in the national economic stats a few months later. Hmmm. Maybe we’re not so independent after all? Maybe we just make our economic decisions using information similar to that of a slew of other baby boomers.
This year, owing to a change in our personal circumstance as well as the economic situation, we decided to stop using a lawn service. Instead, since I was home more (the last 4 years I’d been working away from home, returning only on weekends) I could take care of the lawn myself. Of course, I’d have to buy a lawn mower, edger, trimmer and blower to do the work. By now some of you have already figured out where I’m going.
The act of buying all that lawn care equipment certainly boosted Toro and Echo (the equipment makers). It also boosted the sales at Coastline Lawn (the retail store where I bought the equipment) and Home Depot/Lowes where I bought some miscellaneous items (gas cans, fuel stabilizer, hand tools, etc.) I expect my purchases to show up as sales in these and other companies quarterly reports. But it’s not all gain.
No, the pain is felt by Hardy’s Grassworks, the lawn service company. A small business, they will lose the revenue I used to provide. Hardy’s grassworks is a well run business by the way – I recommend them to the Wilmington, NC area. But the bottom line is that the $1500 annual cost for Hardy’s (worth every nickel) is greater than the $1000 or so I paid for all my equipment. Since my time no longer has the same value I chose to buy the euipment, cancel the service and do the work myself. The net result to the national economy is a gain of +$1000 for the equipment purchases (an immediate gain) but an annualized loss of -$1500 to be felt over the next 6-9 months.
Multiple my choice out by 5 or 10 million like minded 60+ boomers and the national result is an annualized drop in GDP of perhaps $5 Billion or more. Not much in a $14 Trillion economy but a billion here, a billion there and pretty soon we’re talking real money (to misquote an old congressman). And keep in mind that my particular series of choices shows up real quick in the sales figures but real slow in the small business revenues (and ultimately the taxes they pay).
Maybe, just maybe those HD and LOW sales and earnings gains improvements not so bads are temporary?