Commentary: Buffett’s Got the Inside Numbers on Softening Consumer Demand

(BRK.A), (BRK.B)

Warren Buffett probably knows the current state of the economy better than anyone else in the United States. After all, at any moment he knows how cars are selling at Berkshire Hathaway Automotive, how homes are selling at Berkshire Hathaway Home Services, and how much goods and commodities are shipping at BNSF Railway.

BNSF Railway’s total carloads for 2019 are in a downward trend as compared to 2018 due to a major decrease in intermodal shipping, which is down 5.53% from 2018.

And we already know from Ford’s and General Motors’ earning reports that car sales fell in the second quarter.

Buffett also knows that consumer demand for furniture and home goods continues to soften, as the numbers at his retailers: Nebraska Furniture Mart, Jordan’s Furniture, RC Willey, and Star Furniture show.

In its latest SEC filing, Berkshire Hathaway reported that its sales and earnings from its furniture business were down 3% from the same period in 2018.

“Soft consumer demand,” along with poor weather in parts of the country, were the reasons cited.

Berkshire’s pre-tax earnings for home furnishings for the first six months fell a dramatic 23%, due to higher operating costs and lower sales.

Home furnishings, which include furniture, appliances, rugs, table and chairs, and other home décor, decline in sales when consumers cut back on discretionary spending, delay upgrading, and avoid adding large purchases, as their consumer debt grows.

Berkshire’s Jordan’s Furniture, which is the leading furniture retailer in New England, is already offering 72-month interest free financing in order to prop up sales.

Strong consumer demand, which has long propped up the economy, and kept the longest economic expansion in U.S. history chugging along, may finally be weakening. And Warren Buffett certainly knows it better than anyone.

© 2019 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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