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How is the economy doing? Home appliances suggest some weakness.

Investors may be cooling on Home Depot, Lowe's, and Best Buy stocks.

Much higher interest rates and a major housing market cooldown appear to be putting appliance sales through the spin cycle as seen in rising levels of discounting at major retailers such as Home Depot (HD) and Best Buy (BBY).

"We have found that appliance markdowns are now well above the levels seen in the last two years and are now even above pre-pandemic levels," Bank of America analyst Elizabeth Suzuki wrote in a new client note on Wednesday.

Suzuki's research reveals that promotions — or the percentages off the original prices — for appliances ranging from $500 to $5,000 at Home Depot averaged about 14% in March. That marks an increase from a 9% average promotion seen in March 2022.

CHICAGO, IL - MARCH 24:  A customer shops for appliances at a Home Depot store on March 24, 2015 in Chicago, Illinois. The Labor Department reported the consumer-price index rose a seasonally adjusted 0.2% in February from a month earlier, the first rise since October and the largest increase since June.  (Photo by Scott Olson/Getty Images)
CHICAGO, IL - MARCH 24: A customer shops for appliances at a Home Depot store on March 24, 2015 in Chicago, Illinois. (Photo by Scott Olson/Getty Images)

What could be more alarming to investors is that promotions on big-ticket items in all categories sold at Home Depot are running above 2019 levels year-to-date, according to Suzuki's research.

Over at Best Buy, appliance promotions were roughly 20% on average in March. A year ago, promotions clocked in at an average of 18%.

Meanwhile, the number of appliance categories offered on sale at Best Buy in 2023 (in other words, the breadth of promotions) is tracking above the average of the last three years, Suzuki noted.

"This is likely a reflection of softening demand and increasing inventories," Suzuki said.

To that end, sales in the building materials and appliances category are down 1.7% year to date, per the latest retail sales report.

Appliance discounts pick up.
Appliance discounts pick up.

The weakness in big-ticket goods such as appliances reflects a few factors.

First, the higher cost of credit has made it much more expensive to purchase appliances that have been jacked up in price over two-plus years of inflation. The average credit card rate right now on a store card could be north of 20%, depending on the store and credit profile of the consumer.

Second, consumers continue to show a propensity to buy services like summer vacations as opposed to hard goods post-pandemic.

And lastly, the housing markdown slowdown at the hands of rising interest rates has dented appliance demand.

Existing home sales data for February showed a 22.6% year-over-year decline. Prices for those homes dropped 0.2% year over year. New home sales declined 19% in February versus the prior year.

"We foresee macro headwinds to slowly turn into tailwinds as the year progresses," Whirpool CEO Marc Bitzer told analysts on an early February conference call. "Needless to say that it is difficult to predict the exact timing of the shift in the macro cycle, but we would expect this to happen towards late Q2 or early Q3."

To combat the sales slowdown, Whirlpool (WHR) is looking to slash $800 million to $900 million in costs this year.

Investors are taking a wait-and-see approach to appliance stocks. Whirlpool stock is down 5.7% year to date despite those promised cost cuts, lagging the 7.5% advance for the S&P 500.

Home Depot's stock is off by 7% on the year, while Best Buy has shed 6.9%. Lowe's stock (LOW) is up slightly year to date.

Suzuki's data suggests that patience is the right call on these appliance names.

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations or anything else? Email

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