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Law Decoded: Big Tech, Central Banks and the Hunt for Monopolies, July 24-31

Law Decoded: Big Tech, Central Banks and the Hunt for Monopolies, July 24-31

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The leaders in this week’s policy news focus on some case studies in power accumulation that more than anything show why decentralization tech matters.

Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law. 

Editor’s note

The concept of monopoly will reign in today’s Law Decoded. As a fundamental principle, blockchain technology is about distributing both inputs and outputs of information securely. In its still very young lifecycle, the technology has proven to have boundless applications on the basis of this fairly simple principle. 

A secondary principle is decentralization, and in this way, blockchain technology seems inherently opposed to monopolies. The big challenge of Bitcoin’s white paper was finding a way to move value across parties without getting lost in either that proverbial valley between two Byzantine generals OR the trap of a third party. That’s not to say that every firm working in blockchain is morally so grounded as to turn down the opportunity to monopolize its market. But the tech is promising for addressing a huge range of concentrated power — especially in a digitizing world.

This week saw antitrust conflict between paeons of big tech and government. While those encounters were hostile, they will likely not result in any major damage to anyone’s bottom line. It also saw some new consequences for misuse of monopolized monetary power, which is a system that is also unlikely to change soon. The great thing about a monopoly, once you have it, is that it’s really hard for someone else to take it from you. But these are clusters of power that seem pretty obvious as places you’d look to decentralize.

Kollen Post, Policy Editor, @the_postman_

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Governments take Big Tech to task for antitrust practices

CEOs for the four horsemen of U.S. tech — Apple, Amazon, Google and Facebook — appeared virtually before Congress on Wednesday to face accusations of functionally acting as monopolies. 

The Thursday release of Q2 earnings reports showing rising revenues for each of the firms except Google did nothing to gain these firms sympathy. This was despite efforts during the hearings by the CEOs to depict their companies and their individual biographies as the American dream come true. 

The past half-decade has ravaged the public image of tech in the United States. Increasingly dystopian revelations of data-gathering practices and brutal campaigns to squash competition have led to a widespread backlash against Silicon Valley. The role of social media in the 2016 election and subsequent waves of disinformation (including COVID-19) has also ended whatever honeymoon period firms like Facebook and Twitter had enjoyed. 

Meanwhile, China, whose digital payments providers are widely praised as ahead of those in use in the U.S., looks set to crack down on those providers based on similar antitrust principles. For China, however, that might be at least in part to clear the way for a broad launch of a digital yuan.

Many of these tech giants are entrenched enough that they may be getting too big to fail. It is undeniable that they provide services that have changed our way of life. As Mark Zuckerberg pointed out during Facebook’s investor call last night, had the COVID-19 pandemic happened two decades ago, this shift to working remotely wouldn’t have been possible, and many more people would be dying. However, recent events should be getting a lot of people thinking about whether these giant firms are the best we can do and whether we might be better served looking at decentralized alternatives. 

...and maybe central bank monopolies next?

Also in the U.S., the Federal Reserve’s printer continues to go brrr, beating out the country’s total money printing over the first two centuries of its existence in the space of a month. The dollar is, for the first time during this pandemic, looking to be on the ropes. 

Quantitative easing — the formal term for the Fed’s use of inflation as a source of funds at the expense of all dollars already out there — is a recurring villain in Bitcoin narratives. The idea is that it has to result in a monetary collapse eventually.

The extraordinary expenditures in the U.S. over recent months have seen the dollar stubbornly resisting this narrative, but according to recent analysis, that’s changing. Early in the pandemic, global financial institutions and governments scrambled to stock up on dollars, buoying demand and value despite outlays. But this week, as Congress considers another huge stimulus bill, the dollar dipped to its lowest level since May 2018. 

We’re not witnessing a collapse in the monetary system, but certainly, a strain that, if it continues, will call into question whether the Fed really knows what it’s doing. At the same time, the head of the country’s major banking regulator is calling for blockchain-based challengers to the Fed’s central role in payments. 

All five of the world’s main reserve currencies are now looking to digitize

As China and the U.S. dominate headlines focusing on potential central bank digital currencies, and different European Union banks are launching their own trials, the remaining two of the five major currencies in the world have taken major steps indicating the same interest. 

The Bank of Japan announced that it had appointed its top economist to a team doing research on the digital yen. The Bank of England, meanwhile, tapped Accenture to update technology for the U.K.’s payments system — not explicitly referring to a CBDC, but Accenture is deeply involved in the development of CBDCs around the world, including the digital dollar.

The dollar, the euro, the yen, the pound sterling and, as of 2016, the yuan form the basis for the International Monetary Fund’s Special Drawing Rights and form the backbone of global reserves. None of the five are transacting as CBDCs yet, but it’s clear that they are all worried about being left out. CBDC technology is not yet standard, but at the very least, research into it has become necessary to those currencies looking to maintain their prestige.

Further reads

The American Enterprise Institute’s visiting crypto expert, Jim Harper, talks digital dollars and new payments systems.

Coin Center, a leader in lobbying and research on decentralized networks, has updated its educational resources.

Kelman Law runs down the basics of paying taxes on both earnings in cryptocurrencies and capital gains on trading in the United States.

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Beer bankruptcy apocalypse claims another fan-favorite brand

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Before the covid pandemic, craft breweries had a moment. Beer snobs ruled the day, creating a market for local brewers to expand their businesses into regional distribution.

The demand for interesting beers was clear: Younger drinkers drove a movement that pushed local brewers to challenge the established brands. But that movement was wiped out once covid hit because craft brewers relied on people visiting their breweries.

Related: Retailer goes from Chapter 11 bankruptcy to Chapter 7 liquidation

Even brands that had good distribution in grocery and liquor stores suffered during the period where people could not visit their brewery/bar locations. It was a financial drain that pushed a number of these popular brands to the edge of ruin.

And after the pandemic ended, many of these beer brands suffered as younger consumers moved away from drinking beer, Some embraced the alcohol-free mocktail movement while others simply swapped cocktails, hard seltzers or other alcohol for beer.

Now, the craft beer industry is facing an apocalypse. Most famously, Anchor Brewing, the San Francisco icon that had national distribution, shut down last summer. A wave of bankruptcies followed, including regional favorites like Chicago’s Metropolitan Brewing, New Jersey’s Flying Fish, Denver’s Joyride Brewing, Tampa’s Zydeco Brew Werks and Cleveland’s Terrestrial Brewing.

It has been a devastating run for the craft-beer industry, and the bleeding has not stopped.

It has been a rough period for craft breweries.

Image source: Shutterstock

Another brewery files Chapter 11 bankruptcy

A brewery that touts being at an 8,530-foot elevation, Guanella Pass, also has the distinction of being the first brewery in Georgetown, Colo., since Prohibition. The company described its two locations on its website,   

“At the foot of the Guanella Pass Scenic Byway in Historic Georgetown, CO, sits the original Brewery, and at the foot of Berthoud Pass in downtown Empire sits our second tap room and kitchen. A true mountain brewery,” the company says. 

“We believe that where you drink beer is as important as what beer you drink. So leave the grind behind, sit for a bit, and share a story or two. Because here, all you need is what you have and a good beer.”

The brewery also distributes its beers regionally at a number of locations in Colorado.

Guanella Pass continues to operate after its late-December Chapter 11 filing and the brewery has an upcoming big event scheduled for Feb. 17.

“Pass it along, there’s a Pig Roast in town! Join us at Guanella Pass for our piggy throw down! We’ll be smokin’ this bad boy starting late Friday night to get ready for our grand meat cutting at 3pm. Feel free to swing by and say hi to our BBQ crew. It’s $15 per plate, come and grab some before we run out,” the company said on its website. 

Guanella Pass has a lot of debt

In its bankruptcy filing, Guanella Pass disclosed that it had $2.3 million of debt while bringing in only $860,000 of revenue in the previous year. The company showed $72,000 in assets at the time of the filing. 

The brewer, which hopes to restructure its debt and keep operating, has a significant number of creditors,

“It owes $573,000 to First Savings Bank, which loaned it money in 2021, and $256,000 to the Clear Creek Economic Development Corp., a nonprofit that loaned it money in 2019. Both loans are collateralized by the property at 501 Rose St. in Georgetown,” the Denver Post reported.

The brewer also owes its majority shareholders, Steven and Stacey Skalski, $700,000. In addition, the company has an unpaid $135,000 loan with the U.S, Small Business Administration and owes the Colorado Department of Revenue $100,000 along with $32,000 to its food vendor, $22,000 to its bookkeeper and $10,000 to its power company, the newspaper reported.

Related: Veteran fund manager picks favorite stocks for 2024

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Public Health from the People

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There are many ways to privately improve public health. Such responses make use of local knowledge, entrepreneurship, and civil society and pursue standard goals of public health like controlling the spread of infectious diseases. Moreover, private responses improve overall welfare by lowering the total costs of a disease and limiting externalities. If private responses can produce similar outcomes as standard, governmental public health programs—and more—perhaps we should reconsider when and where we call upon governments to improve public health.

Two Kinds of Private Responses

Following Vernon Smith and his distinction between constructivist and ecological rationality, private actors can engage in two general kinds of public health improvements. They can engage in concerted efforts to improve public health, and they can engage in emergent responses through myriad interactions.1 Three stories below—about William Walsh, Martha Claghorn, and Edwin Gould—indicate concerted efforts to improve public health.

Walsh, a Catholic priest and President of the Father Matthew Society in Memphis, Tennessee, used the society to organize a refugee camp outside of the city and helped hundreds of people avoid yellow fever during the 1878 epidemic—one of the worst yellow fever epidemics in the country.2 Shortly after learning mosquitos carried diseases prior to 1901, Claghorn chaired the Civics committee of the Twentieth Century Club in the Richmond Hill area of Long Island and led a community-wide anti-mosquito campaign, which rid the area of potentially infectious mosquitos.3 After realizing that many of his employees were sick with malaria, Gould—president of the St. Louis Southwestern Railway—used his wealth and business firm to finance and develop an anti-mosquito campaign throughout Texas.4

These stories show how individuals recognize a public health problem given their circumstances and use their knowledge and available resources to resolve the problem. More recently, we might all be familiar with private, constructivist responses to Covid-19. We all made plans to avoid others and produce our desired amount of exposure. Many people made facemasks from old clothes or purchased them from facemask producers. Businesses, retailers, restaurants, and many others adapted in various ways to limit exposure for their workers and customers. My favorite example, albeit not relevant for most, is the so-called bubble that was implemented by the NBA, which housed teams, encouraged play, and limited infection. The NBA finished their season and crowned a 2020 champion only because of the privately designed and implemented bubble solution. The key is that the bubble pursued all of those objectives, not just one of them. All of these responses indicate how private interactions among people can minimize their exposure, through negotiation, discussion, and mutually beneficial means.

In addition to privately designed solutions, emergent public health responses are also important, perhaps even more so. Long-term migration and settlement patterns away from infectious diseases, consumption to improve nutrition, hygiene, sanitation, and the development of social norms to encourage preventative behavior are all different kinds of emergent public health responses. Each of these responses—developed through the actions of no one person—are substantial ways to improve public health.

First, consider how common migration operates as a means of lowering prevalence rates. As soon as people realized that living near stagnant bodies of water increased the probability of acquiring diseases like malaria, they were more likely to leave those areas and subsequently avoid them. Places with such features became known as places to avoid; people also developed myths to dissuade visitors and inhabitants.5 Such myths and associations left places like the Roman Campagna desolate for centuries. These kinds of cultural associations are also widespread; for example, many people in North and South Carolina moved to areas with higher elevation and took summer vacations to avoid diseases like malaria. East End and West End, in London, also developed because of the opportunities people had to migrate away from (and towards) several diseases.6

While these migration patterns might develop over decades, movement and migration also help in more acute public health crises. During the 1878 yellow fever epidemic throughout the southern United States, for example, thousands of people fled their cities to avoid infection. They took any means of transportation they could find. While some fled to other, more northern cities, many acquired temporary housing in suburbs, and many formed campsites and refugee camps outside of their city. The refugee camps outside of Memphis—like the one formed by William Walsh—helped hundreds and thousands of people avoid infection throughout the Fall of 1878.

Second, more mundane public health improvements—like improvements in nutrition, hygiene, and sanitation—are also emergent. These improvements arise from the actions of individuals and entrepreneurs, often closely associated with voluntary consumption and markets. According to renowned medical scientist Thomas McKeown, that is, rising incomes encouraged voluntary changes in consumption, which helped improve nutrition, sanitation, and lowered mortality rates.7 These effects were especially pertinent for women and mothers as they often selected more nutritious food and altered household sanitation practices. With advancing ideas about germs, moreover, historian Nancy Tomes argues that private interests advanced the campaign to improve house-hold sanitation and nutrition—full of advice and advertisements in newspapers, magazines, manuals, and books.8 Following Tomes, economic historians Rebecca Stein and Joel Mokyr substantiate these ideas and show that people changed their hygiene, sanitation, house-hold cleaning habits, and diets as they learned more about germs.9 Such developments helped people to provide their desired exposure to germs according to their values.

Obviously, there were concerted public health improvements during this time that also explain falling mortality rates. For example, waterworks were conscious efforts to improve public health and were provided publicly and privately, with similar, positive effects on health.10 The point is that while we might be quick to connect the health improvements associated with a public water system, we should also recognize emergent responses like gradual changes in voluntary consumption.

Finally, social norms or rules that encourage preventative behavior might also be relevant kinds of emergent public health responses. Such rules identify behavior that should or should not be allowed, they are enforced in a decentralized way, and if they follow from the values of individuals in a community.11 If such rules pertain to public health, they can raise the cost of infectious behavior or the benefits of preventative behavior. Covering one’s mouth when sneezing is not only beneficial from a public health perspective, it also helps avoid earning disapproval.

The condom code during the height of the HIV/AIDS epidemic is another example of an emergent public health rule that reduced infectiousness by encouraging safer behavior.12 People who adopted safer sexual practices were seen to be doing the right thing—akin to taking care of a brother. People who refrained from adopting safer sexual practices were admonished. No single person or entity announced the rule; rather, it emerged from the actions and interactions of individuals within various communities to pursue their goals regarding maintaining sexual activity and limiting the spread of disease. Indeed, such norms were more effective in communities where people used their social capital resources to determine which behaviors should be changed and where they can more easily monitor and enforce infractions. This seems like a relevant factor where many gay men and men who have sex with men live in dense urban areas like New York and Los Angeles that foster LGBTQ communities.

Covid-19 provides additional examples where social norms encouraged the use of seemingly appropriate behavior, e.g., social distancing, the use of facemasks, and vaccination. Regardless of any formal rule in place, many people adapted their behavior because of social norms that encouraged social distancing, the use of facemasks, and vaccination. In communities that valued such behaviors, people that wore face masks and vaccinated were praised and were seen as doing the right thing; people that did not were viewed with scorn. Indeed, states and cities that have higher levels of social capital and higher values for public health tend to have higher Covid-19 vaccine uptakes.13

Improving Public Health and More

“Private approaches tend to lower the total costs of diseases and they limit externalities.”

While these private approaches can improve public health, can they do more than typical public health approaches cannot? Private approaches tend to lower the total costs of diseases and they limit externalities. Each aspect of private responses requires additional explanation.

Responding to infectious diseases and disease prevention is doubly challenging because not only do we have to worry about being sick, we also have to consider the costs imposed by our preventative behaviors and the rules we might impose. Thus, the total costs of an infectious disease include 1) the costs related to the disease—the pain and suffering of a disease and the opportunity costs of being sick—and 2) the costs associated with preventative and avoidance behavior. While disease costs are mostly self-explanatory, the costs of avoiding infection warrant more explanation. Self-isolation when you have a cold, for example, entails the loss of potentially valuable social activities; and wearing condoms to prevent sexually transmitted diseases forfeits the pleasures of unprotected sexual activity. Diseases for which vaccines and other medicines are available are less worrisome, perhaps, because these are diseases with lower prevention costs than diseases where those pharmaceutical interventions are not available. Governmental means of prevention also add relevant costs. Many readers might be familiar with the costs imposed by our private and public responses to Covid—from isolation to learning loss, and from sharp decreases in economic activity to increased rates of depression and spousal abuse.14 Long before Covid, moreover, people bemoaned wearing masks during the Great Flu,15 balked at quarantine against yellow fever,16 and protested bathhouse closings with the onset of HIV.17

Figure 1 shows the overall problem: diseases are harmful but our responses to those diseases might also be harmful.

Figure 1. The Excess Burden of Infectious Diseases

This figure follows Bhattacharya, Hyde, and Tu (2013) and Philipson (2000), who refer to the difference between total costs and disease costs as the excess burden of a disease. That is, excess burden depends on how severely we respond to a disease in private and in public. The excess burden associated with the common cold tends to be negligible as we bear the minor inconvenience of a fever, a sore throat perhaps, or a couple days off work; moreover, most people don’t go out of their way to avoid catching a cold. The excess burden of plague, however, is more complicated; not only are the symptoms much worse—and include death—people have more severe reactions. Note too that disease costs rise with prevalence and with worsening symptoms but eventually decline as more severe diseases tend to be less prevalent. Still, no one wants to be infected with a major disease, and severe precautions are likely. We might shun all social interactions, and we might use government to impose strict quarantine measures. As disease severity rises along the horizontal axis, it might be the case that the cure is worse than the disease.

The private responses indicated above all help to lower the total costs of a disease because people choose their responses and they use their local knowledge and available resources to select cheaper methods of prevention. Claghorn used her neighborhood connections and the social capital of her civics association to encourage homeowners to rid their yards of pools of water; as such she lowered the costs of producing mosquito control. Similarly, Gould used the organizational structure of his firm to hire experts in mosquito control and build a sanitation department. These are cheap methods to limit exposure to mosquitos.

Emergent responses also help to lower the total costs of a disease because such responses indicate the variety of choices people face and their ability to select cheaper options. People facing diseases like malaria might be able to move away and, for some, it is cheaper than alternative means of prevention. Many people now are able to limit their exposure to mosquitos with screens, improved dwellings, and air conditioning.18 Consider the variety of ways people can limit their exposure to sexually transmitted diseases like HIV. If some people would rather use condoms to limit HIV transmission, they are better off doing so than if they were to refrain from sexual activity altogether. Similarly, some people would be better off having relatively risky sexual activity if they were in monogamous relationships or if they knew about their partner’s sexual history. That people can choose their own preventative measures indicates lower total costs compared with blunt, one-rule-for-all, governmental public health responses.

Negative and positive externalities of spreadable diseases indicate too much infectious behavior and too little preventative behavior, respectively. Hosting a party is fun, but it also incurs the internal costs of the drinks and appetizers and, more importantly, perhaps the external costs of raising the probability that people get sick. Attending a local cafe can be relaxing, but you have to pay for a cup of coffee and you might also transmit a disease to other coffee drinkers. The same could be said for many other public and social activities that might spread diseases like attending a class or a basketball game, transporting goods and people, and sexual behaviors. Our preventative behaviors from taking a vaccine to covering your mouth and from isolation to engaging in safer sexual practices emits positive externalities. If left unchecked, negative and positive externalities lead to higher rates of infection.

Overall, we should continue to think more critically about delineating how private and public actors can improve public health and overall welfare. More importantly, we should recognize that private actors are more capable than we often realize, especially in light of conscious efforts to improve public health and those efforts that emerge from people’s actions and interactions. These private efforts might be better at advancing some public health goals than public actors do. Individuals, for example, have more access to local knowledge and can discover novel solutions that serve multiple ends—often ends they value—rather than the ends of distant officials. Such cases and possibilities indicate cheaper ways to improve public health.

Footnotes

[1] Smith (2009), Rationality in Economics: Constructivist and Ecological Forms, Cambridge University Press.

[2] For more on Walsh, see Carson (forthcoming), “Prevention Externalities: Private and Public Responses to the 1878 Yellow Fever Epidemic,” Public Choice.

[3] For more on Claghorn, see Carson (2020), “Privately Preventing Malaria in the United States, 1900-1925,” Essays in Economics and Business History.

[4] For more on Gould, see Carson (2016), “Firm-led Malaria Prevention in the United States, 1910-1920,” American Journal of Law and Medicine.

[5] On the connection between malarial diseases, dragons, and dragon-slaying saints, see Horden (1992), “Disease, Dragons, and Saints: the management of epidemics in the dark ages,” in Epidemics and Ideas by Ranger and Slack.

[6] For more on migration and prevalence rates, see Mesnard and Seabright (2016), “Migration and the equilibrium prevalence of infectious disease,” Journal of Demographic Economics.

[7] The American Journal of Public Health published several commentaries on McKeown in 2002: https://www.ncbi.nlm.nih.gov/pmc/issues/130602/

[8] Tomes (1990), “The Private Side of Public Health: Sanitary Science, Domestic Hygiene, and the Germ Theory, 1870-1990,” Bulletin of the History of Medicine.

[9] Mokyr and Stein (1996), “Science, Health, and Household Technology: The Effect of the Pasteur Revolution on Consumer Demand,” in The Economics of New Goods, NBER.

[10] See Werner Troesken’s work on public and private waterworks in the U.S. around the turn of the 20th century. See Galiani, Gertler, and Shargrodsky (2005), “Water for Life,” Journal of Political Economy.

[11] Brennan et al., (2013), Explaining Norms, Oxford University Press.

[12] For more on the condom code, see Carson (2017), “The Informal Norms of HIV Prevention: The emergence and erosion of the condom code,” Journal of Law, Medicine and Ethics.

[13] Carilli, Carson, and Isaacs (2022), “Jabbing Together? The complementarity between social capital, formal public health rules, and covid-19 vaccine rates in the U.S.,” Vaccine.

[14] Leslie and Wilson, “Sheltering in Place and Domestic Violence: Evidence from Calls for Service During Covid-19.” Journal of Public Economics 189, 104241. Mulligan, “Deaths of Despair and the Incidence of Excess Mortality in 2020,” NBER, https://www.nber.org/papers/w28303. Betthauser, Bach-Mortensen, and Engzell, “A systematic review and meta-analysis of the evidence on learning during the Covid-19 Pandemic,” Nature Human Behavior, https://www.nature.com/articles/s41562-022-01506-4

[15] On the great influenza epidemic, see CBS News, “During the 1918 Flu pandemic, masks were controversial for ‘many of the same reasons they are today’.” Oct. 30, 2020. https://www.cbsnews.com/news/mask-1918-flu-pandemic-controversial/

[16] On yellow fever quarantine in Mississippi, see Deanne Nuwer (2009), Plague Among the Magnolias: The 1878 Yellow Fever Epidemic in Mississippi.

[17] On these closures, see Trout (2021), “The Bathhouse Battle of 1984.” https://www.sfaf.org/collections/beta/the-bathhouse-battle-of-1984/

[18] Tusting et al. (2017), “Housing Improvement and Malaria Risk in Sub-Saharan Africa: a multi-country analysis of survey data.” PLOS Medicine.

*Byron Carson is an Associate Professor of Economics and Business at Hampden-Sydney College in Virginia, where he teaches courses on introductory economics, money and banking, health economics, and urban economics. Byron earned his Ph.D. in Economics from George Mason University in 2017, and his research interests include economic epidemiology, public choice, and Austrian economics.

This article was edited by Features Editor Ed Lopez.

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Analyst unveils new Lowe’s stock price target ahead of earnings

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They are three letters that represent a multi-billion dollar industry: DIY.

Mention do-it-yourself home repairs, and some people will probably think of This Old House or the 1990s sitcom “Home Improvement,” where Tim Allen portrayed the host of the fictional “Tool Time” TV program. 

Others might think of HGTV, the Property Brothers Jonathan and Drew Scott, or Joanna and Chip Gaines of Magnolia Network. Whatever your particular cultural reference, rest assured that the DIY market is a revenue monster.

An estimated 75% of U.S. homeowners take on DIY projects, and 62% named saving money a top reason for their home improvement efforts. As a result, total U.S. home improvement sales amounted to $538 billion in 2021, according to Statista, and is projected to grow to $621 billion in 2025.

The number of do-it-yourselfers climbed during the COVID-19 outbreak as people had more time on their hands, interest rates were at rock bottom, and stimulus checks were flowing. 

That was good news for home improvement retailers like Lowe’s, which saw its stock price soar in 2021 thanks to higher demand. 

Unfortunately, rising interest rates, inflation, and job uncertainty have increased, denting demand and causing investors to wonder what could happen to Lowe’s shares next.

Lowe’s shares are facing headwinds as do-it-yourself demand slips. Photographer: Luke Sharrett/Bloomberg via Getty Images.

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Pullback in DIY spending

Young homeowners are more likely to attempt do-it-yourself projects because they tend to have less disposable income and believe that the DIY approach will be less costly than hiring a contractor.

The most common types of DIY projects are home interior projects, such as painting, flooring, and décor, which are taken on by 31% of homeowners surveyed.

Unfortunately, those younger DIYers are also most susceptible to tighter budgets, and as a result, Lowe’s  (LOW) – Get Free Report revenue has declined year-over-year for three straight quarters.

Related: Walmart makes a surprise move that investors will love

Lowe’s, which reports quarterly earnings on Feb. 27, is the second-biggest name in the home improvement game, behind Home Depot  (HD) – Get Free Report, which is slated to release updated earnings results on Feb. 19.

Lowe’s posted better-than-expected third-quarter earnings in November but trimmed its full-year profit forecast, echoing Home Depot’s warning that consumers were spending less on big-ticket items- those worth more than $1,000- heading into the holidays.

“While we’ve seen a more cautious consumer for some time now, this quarter, we saw some of these consumers increasingly prioritizing experiences over goods, spending on travel and entertainment,” Chairman and CEO Marvin Ellison said during a conference call with analysts at the time.

Ellison reminded the analysts that DIY customers drive 75% of the company’s revenue while professionals only account for 25% of sales, as opposed to the broader market where the market is roughly fifty-fifty. “As a result, whenever the DIY customer becomes cautious, it disproportionately affects us.”

Given that backdrop, analysts surveyed by FactSet expect Lowe’s to report earnings of $1.68 per share on sales of $18.3 billion, down from earnings of $2.28 per share and revenue totaling $22.45 billion one year ago.

Lowe’s CEO ‘Bullish’ on home improvement

Ellison said that Lowe’s remained bullish on the home improvement industry’s medium- to long-term outlook.

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“We expect home prices to be supported by a persistent supply-demand imbalance of housing, while at the same time, 250,000 millennial household formations are expected per year through 2025, and their parents and grandparents, the baby boomers, increasingly prefer to age in place in their own homes,” he said.

Nevertheless, on Feb. 5, Truist lowered its price target on Lowe’s stock to $244 from $252.

Analyst Scot Ciccarelli told investors in a research note that he is reducing his margin assumptions for fiscal years 2024 and 2025 and cutting his earnings estimates to $12.80 and $14.20 a share from $13.35 and $14.75, respectively.

He did, however, keep his buy rating on the company.

“For the medium-term, we are becoming increasingly bullish on the home improvement sector given general spending resilience, home equity increases, easing comparisons, and the recent positive inflection in Private Residential Fixed Investment PFRI data,” he said.

Ciccarelli said that he believed consumer spending remains fairly steady due to healthy personal balance sheets and strong employment. 

In addition, while the tightening cycle should slow spending, it shouldn’t derail it, he said.

The analyst said that while Lowe’s comparable store sales have decelerated notably over the last two quarters—down roughly 7% to 8%– he believes the company will also get to compare against these easier results in the second half of the calendar year.

Ciccarelli added, “We remain buyers and think that LOW can move sharply higher if we are indeed at the early stages of an easing cycle.”

Related: Veteran fund manager picks favorite stocks for 2024

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