Worse, Staples announced it was lowering its forecast on company earnings and trimming expansion plans for this year. “I’m disappointed by the slowness of the economic recovery,’’ Sargent said on a conference call with investors. “It looks to us that the economy is still stuck in neutral.’’
Four or five economic reports later, the rest of the investing world has come to a similar conclusion. To be fair, the stock market has lost ground for five consecutive weeks, dating back to its recent April 29 high. But those declines have accelerated recently, especially in the past week, as the evidence of a slowing economy began to pile up.
The connection between office superstores and the economy is hardly rocket science. Retailers like Staples cater to a small to midsize business clientele that is hypersensitive to economic shifts. Those customers react quickly when their own businesses slow down and buy less. They stop investing in more expensive office equipment and furniture. Sargent described customer demand as “soft’’ a couple of weeks ago.
Staples is the 800-pound gorilla of the office superstore business, the leader I watch when it comes to signaling changes in the economy. But both of the company’s two smaller, competitors, OfficeMax Inc. and Office Depot Inc., reported declining sales and fewer transactions in stores.
Staples stockholders have paid a price for owning a company on the leading edge of the economy. Their shares have fallen nearly 26 percent since the April 29 market high, the single worst performance among all the stocks that make up the Standard & Poor’s 500 index (extra credit for identifying the worst Massachusetts stock over the same period. Answer below).
But money managers who heard Sargent describe the direction of business at Staples on May 18 and took the economic hint surely feel good about it today.
