Middle-class shoppers are pulling back

"Home Depot just became the latest major retailer to warn that the slowdown in consumer spending is spreading. The home improvement cut its full-year outlook on Tuesday, reporting weakening sales growth for Q3. Comparable sales - a key measure that strips out new store openings - rose by just 0.2% with US comps up by 0.1% - falling short of Wall Street's expectations and underscoring a subtle yet important shift: more financially stable shoppers are starting to pull back."

"Evidence is mounting that it's not just lower-income shoppers who are becoming more cautious with their spending. Home Depot's customer base tends to be relatively well off. And the chain benefits when people buy or renovate homes, but higher borrowing costs and a sluggish housing market have slowed that activity. The company had expected better results as interest rates eased - but even that tailwind wasn't enough."

"Brian W. Nagel, senior equity research analyst at Oppenheimer & Co., told CNBC on Tuesday that the company is facing "a convergence of negative factors" as both housing activity and discretionary spending weaken. "They're not getting any help from the housing market," which is stagnant right now, he said, adding that the consumer backdrop "is going from soft to softer - and that's happening quickly.""

Home Depot reported weakening Q3 sales growth and cut its full-year outlook after comparable sales rose only 0.2% overall and 0.1% in the U.S., missing expectations. Milder weather and a lack of storms reduced demand for seasonal home improvement supplies. Higher borrowing costs and a sluggish housing market have slowed home purchases and renovations, reducing spending by relatively affluent, middle-class customers. Management cited consumer uncertainty and housing pressure as disproportionate impacts on home improvement demand. Analysts described a convergence of negative factors, with housing stagnant and discretionary spending faltering heading into winter.

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