$100,000

“I’m not having kids until we’re making at least $250,000 a year.”

A long time ago, in what now seems a distant alternate reality, I used to say that (or something like it) to my high school girlfriend. I should’ve married her, by the way. A disarmingly precocious Julia Roberts look-alike, she was and, I imagine, probably still is, an exceptional person. We had the contours of a plan. I was going to breeze through my bachelor’s, attend law school at a major state university while she pursued her undergrad at a leisurely pace, then we’d move to a Tier 1 US city, where I’d work at a prestigious law firm. From there, it’d be all black tie dinners, formal cocktail parties and ostentatious marble foyers.

Suffice to say it didn’t work out quite that way. I did breeze through my bachelor’s, and I did attend a major state university for extensive post-grad work, before moving on to… well, even more post-grad work at a smaller university. But the loose similarity in educational trajectory is where the parallels stopped. Unfortunately, she became the first in what, by the year 2015, was an extraordinarily long list of people disappointed by the maddening paradox of my undeniable magnetism and unsurpassed capacity to drive people away by word and deed.

In any case, $250,000 went a long way back then. Certainly further than it does today. I’m not going to trouble myself with the actual math, but given 2022 inflation realities, and particularly the astronomical costs associated with raising a family with an eye towards putting two (or more) children through college, I imagine that if I were 18 again and had the same conversation with “Julia,” my number would’ve been $500,000 at the low-end.

Why bring this up? Well, credit goes to Bloomberg Opinion’s social media editor Jessica Karl. I know what some of you are thinking: I’m not the sort of person who’d be caught dead reading something by Bloomberg Opinion’s social media editor. That’d be correct but, as I accidentally discovered in August, Karl is a very gifted writer. I don’t care for Bloomberg’s Opinion section, and I care even less for social media, but anyone who’s a great writer is a friend of mine (until they get to know me, at which point see above), so I read everything she writes. On Tuesday, she flagged what she called the “Writing on the Wal”. The “Wal” was, of course, a reference to Walmart’s quarter, which was good.

Allow me to recapitulate for context. Earlier this year, Walmart was caught badly offside. In a testament to the scope and severity of lingering supply chain problems, even Walmart, famous for supply chain management, found itself struggling with what CEO Doug McMillon in May described as an “unusual” operating environment. In Q1, supply chain costs crimped profitability, and McMillon admitted to being surprised by the extent to which US inflation and higher prices for food and fuel weighed on the mix. The margin shortfall and a generally poor report precipitated a singularly bad day for the shares, which plunged the most in decades.

Fast forward to July, and Walmart stunned investors again with what I described at the time as “an egregious guide down.” McMillon again blamed higher food and fuel costs, which, he reiterated, “are affecting how customers spend.” On the inventory front, where Walmart struggled like many of America’s largest retailers, McMillon cited “good progress clearing hardline categories [and] apparel,” but conceded the progress came at a cost — namely, markdowns. He said Walmart was expecting “more pressure on general merchandise in the back half.” Three weeks later, while reporting Q2 results, Walmart said it had canceled “billions of dollars” in orders “to help align inventory levels with expected demand.” Efforts to improve inventory levels in the US, alongside gains in grocery share, pressured margins in the second quarter too, a trend management suggested would continue for the balance of the year. Mercifully, the company’s outlook stabilized.

That brings us to Q3’s report (so, yesterday), when Walmart delivered what one major bank described as a “grand slam” — a beat and raise plus a buyback announcement. There’s little utility in walking through the comps, etc. It was all good news if you don’t count an annoying FX headwind and a multi-billion dollar opioid settlement (“small” things, to be sure). The shares jumped nearly 7%.

That was great for shareholders, particularly given the somewhat bumpy ride it’s been in 2022, but in what I think it’s fair to describe as “less great” news from a big-picture, societal perspective, Walmart suggested that inflation realities in America are now effectively making the rich poor. Of course, CFO John David Rainey didn’t put it that way. Not even close. Instead, he said, of the company’s gains in grocery share,

Walmart is well-positioned to serve customers and gain greater trip frequency during tougher economic periods, and we have even more tools to do so in this cycle. For example, we’ve continued to gain grocery market share from households across income demographics, with nearly three-quarters of the share gain coming from those exceeding $100,000 in annual income.

Plainly, that’s something Walmart is proud of. And shareholders will be fine with it as long as it doesn’t erode margins too much. But I’d argue it’s a damning indictment of the economic reality facing the world’s richest nation when the planet’s largest retailer is rapidly expanding its footprint in the grocery business on the back of six-figure earners who are increasingly enamored with Walmart’s “everyday low prices” guarantee.

I’ve lived, for a long time, among seven-figure earners, many of whom generate the majority of their income passively. So, perhaps I’m just out of touch. But, unless the world has changed dramatically since I was last engaged in everyday economic activity in locales where a lot of people live, work and shop, six-figure earners typically buy groceries at grocery stores. There’s a reason why Whole Foods works, and it’s certainly not that people enjoy fighting through the sometimes overbearing smell of patchouli while they choose something for dinner. Whole Foods works because people with money (and also flower children) enjoy overspending on ostensibly high-end food. It’s the same reason people in the south go to Publix. Everyone knows it’s more expensive, but it’s also infinitely more pleasant even than Kroger, to say nothing of Walmart. Bottom line: It’s exceedingly difficult to imagine someone making $150,000 per year shopping for groceries at Walmart if they don’t have to.

That’s the first part of what Bloomberg’s Karl called “a rather unsettling coincidence.” The other part was a figure she saw in a separate Bloomberg article, but which was originally featured in a piece published by Redfin (whose shares are down more than 90% from highs hit early last year).

“A homebuyer must earn $107,281 to afford the monthly mortgage payment on the typical US home, up 45.6% from a year ago,” Dana Anderson, who apparently escaped the recent round of layoffs at Redfin, wrote, before stating the obvious: “That’s due to mortgage rates that have more than doubled over the last 12 months, combined with persistently high home prices.”

The figure (above) is highly disconcerting. Note that the simple metric (which relies on a standard definition of “affordable”) hovered around $60,000 for three years straight, and was just ~$42,000 as recently as 2015. In the Bay Area (admittedly not worth citing given that it’s a ridiculous anomaly), the typical monthly mortgage payment is now in excess of $10,000.

“Ugh. Is this what America has come to?” Karl wondered, despairingly. “Needing to make six figures in order to afford a house and buy groceries??? Lunacy.” If Karl doesn’t make six figures, I hope she asked for a raise this week. She can cite her own article if she needs to help make the case.

Coming full circle, I can safely say that 18-year-old me would be taken aback by this conjuncture. While I can’t say for sure without Marty McFly’s DeLorean, my guess is that if I showed my younger self these numbers, his annual income threshold for starting a family might well be in excess of seven figures.