This article is more than 7 years old

This article is more than 7 years old

Walmart dampened hopes of a widespread economic recovery Thursday as the world's largest retailer reported lackluster sales for the last three months.

Sales grew slower than expected as the retailer said consumers reined in spending and traded down to lower-priced products. Wal-Mart cut its forecast for profits and sales for the year.

Profits rose slightly to $4.07bn in the quarter ending July 31 from $4.02bn a year earlier. But sales at US stores open at least a year – a key retail measure – fell 0.3%, their fifth consecutive decline. "The customer remains challenged," Walmart US president Bill Simon said.

Chief financial officer Charles Holley said: "The retail environment remains challenging in the US and our international markets, as customers are cautious in their spending."

Holley said higher payroll taxes, instituted in January, and high fuel prices had impacted spending. "Our expectations for the back half of the year are through a lens of cautious consumer spending," he said.

The news comes in the same week that Kohl's and Macy's, the department store chains, posted disappointing results. Macy's cut its full year forecast as chief financial officer Karen Hoguet blamed "the health of the consumer" for a slip in sales.

The retail gloom comes against a background of steady, positive economic news. On Thursday the Labor Department said the number of US workers seeking first-time unemployment benefits had fallen to its lowest level since before the recession. The number of people making initial jobless claims fell by 15,000 to a seasonally adjusted 320,000 in the week ended August 10. Initial claims peaked at 667,000 at the end of March 2009.

Gus Faucher, PNC Financial's chief economist, said despite the economic recovery things remained difficult for consumers, particularly at the lower end of the wage scale. Those consumers were not benefiting from rising house prices or stock markets, he said.

"The economy is adding jobs but wage growth is very weak. The increase in taxes had an effect, especially for those living from wage cheque to wage cheque," he said.