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Do-It-Yourself Boost for Economy

Strong second-quarter revenue growth at home improvement giants Home Depot (HD - Get Report) and Lowe's (LOW - Get Report) should dampen recent speculation that the economy could be falling into another recession, retail analysts say.

"It's very unlikely we're going to see a recession right now," said Craig Johnson, president of Customer Growth Partners, a retail consultant firm. "The economy had clearly hit a speed bump in early June at the peaking of gas [pump] prices ... If there was going to be a recession, these top-line numbers would be low-single digits instead of high-double digits."

Home Depot reported Tuesday that second-quarter sales jumped 11% to $19.96 billion with earnings excluding items of 71 cents a share. That easily surpassed the consensus estimate for 64 cents a share. Lowe's said Monday sales spiked 17.4% to $10.17 billion, while EPS rose to 89 cents from 75 cents in the year-earlier quarter.

"I don't see a recession in the near term," said Charles Georgas, a vice president at Marquis Investment Research. "I think [it was] the spike in oil prices. That's really overall what was creating the soft patch. When oil prices come down, you'll see continued strength."

He noted that when it comes to the retail sector, sales at the home improvement retailers are hurt less than others by volatile gas prices, similarly to what Home Depot said in its post-earnings conference call . High energy prices "shouldn't have as much of an impact because [Home Depot and Lowe's] can benefit from home improvements when people aren't traveling as much," said Georgas.

Thus, the fact that sales at the two retailers haven't come under severe pressure is a positive sign for the economy, agreed Brian Postal, an analyst at A.G. Edwards & Sons. "I think the strong commentary from both management teams that early August trends have been quite robust has helped [prove that the] disruption in the June/July period was just kind of a blip."
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