More economics misreporting

Steven M. Warshawsky
The headline on the Reuters story syndicated all over the world  today is "Wal-Mart Hits the Wall:  World's largest retailer issues bleak forecast, pointing to cash-squeezed customers, higher fuel prices, interest rates."  The accompanying story describes Wal-Mart as "struggling" -- which would carry dire implications for the U.S. economy, because Wal-Mart, which serves 127 million customers every week, "is considered a barometer of the health of the U.S. retail sector."  The clear thrust of the article is that Wal-Mart, and hence the U.S. economy, is in trouble.

Really?  What the article actually shows is that Wal-Mart's second-quarter sales "were $91.99 billion, up almost 9 percent from a year ago."  Moreover, its earnings rose to $3.1 billion, up from $2.08 billion a year ago.  So, in reality, sales and profits were higher than last year.  These are not the financials of a company that is in trouble. 

Yet the takeaway message from the story is that Wal-Mart supposedly faces a "bleak" future.  Why?  Because Wal-Mart was not quite as profitable as "expected" last quarter, and so the company has "forecast" slightly lower earnings for the rest of the year.  In other words, economic predictions are considered more important than actual economic performance in determining the health of the company.  Furthermore, predictions that the company will enjoy slightly reduced profits in the future are treated, in essence, as proof that Wall-Mart is losing money and teeters on the brink of disaster, along with the U.S. economy.

This type of reporting -- which is absolutely commonplace throughout the media -- is deeply misleading, indeed irrational.  I realize that this is the way that much of the business and financial world thinks (especially among those involved in the stock market).  But it still doesn't make sense.  Most importantly, voters should not vote and politicians should not pass laws (e.g., minimum wage increases, price controls on energy, trade tariffs, etc.) based on such wrongheaded economic "analysis."

Contact Steven M. Warshawsky  
The headline on the Reuters story syndicated all over the world  today is "Wal-Mart Hits the Wall:  World's largest retailer issues bleak forecast, pointing to cash-squeezed customers, higher fuel prices, interest rates."  The accompanying story describes Wal-Mart as "struggling" -- which would carry dire implications for the U.S. economy, because Wal-Mart, which serves 127 million customers every week, "is considered a barometer of the health of the U.S. retail sector."  The clear thrust of the article is that Wal-Mart, and hence the U.S. economy, is in trouble.

Really?  What the article actually shows is that Wal-Mart's second-quarter sales "were $91.99 billion, up almost 9 percent from a year ago."  Moreover, its earnings rose to $3.1 billion, up from $2.08 billion a year ago.  So, in reality, sales and profits were higher than last year.  These are not the financials of a company that is in trouble. 

Yet the takeaway message from the story is that Wal-Mart supposedly faces a "bleak" future.  Why?  Because Wal-Mart was not quite as profitable as "expected" last quarter, and so the company has "forecast" slightly lower earnings for the rest of the year.  In other words, economic predictions are considered more important than actual economic performance in determining the health of the company.  Furthermore, predictions that the company will enjoy slightly reduced profits in the future are treated, in essence, as proof that Wall-Mart is losing money and teeters on the brink of disaster, along with the U.S. economy.

This type of reporting -- which is absolutely commonplace throughout the media -- is deeply misleading, indeed irrational.  I realize that this is the way that much of the business and financial world thinks (especially among those involved in the stock market).  But it still doesn't make sense.  Most importantly, voters should not vote and politicians should not pass laws (e.g., minimum wage increases, price controls on energy, trade tariffs, etc.) based on such wrongheaded economic "analysis."

Contact Steven M. Warshawsky