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Costco CEO weighs in on the great recession debate

Costco (COST) has had an awesome year in a challenging economic climate. But even the CEO of Yahoo Finance's Company of the Year is seeing a few storm clouds taking shape going into 2023.

"You know, a little bit," longtime Costco CEO Craig Jelinek told Yahoo Finance (video above) when asked if he sees signs of a recession forming in the U.S. "Our jewelry business has slowed down. If you look at the really high-end television sets, they've slowed down. I think right now people are very, very value-conscious. They're always value-conscious, but I think more so now than ever."

Costco didn't have a perfect sales record in November (though sales were still relatively impressive) as shoppers spent more cautiously amid news of increasing layoffs and stubbornly high inflation.

GLENDALE, CALIFORNIA - MARCH 14: People push shopping carts in line in the rain as they wait to enter a Costco Wholesale store on March 14, 2020 in Glendale, California. The line had hundreds of shoppers but moved fairly smoothly and shoppers were eventually able to enter the store to make purchases. The state of California is reporting at least 247 confirmed cases of COVID-19 with five deaths. Many more carry the coronavirus but have not been tested, according to officials. (Photo by Mario Tama/Getty Images)
People push shopping carts in line in the rain as they wait to enter a Costco Wholesale store on March 14, 2020 in Glendale, California. (Photo by Mario Tama/Getty Images)

The retail giant's same-store sales growth cooled versus October, the company reported on Nov. 30.

"Look, over the last six or eight months as there's been inflation and concerns of recession, my answer is: It rains on everyone, maybe it drizzles on us, not hard rain," Costco CFO Richard Galanti told Yahoo Finance. "And so we've done a little better than our peers. This [month] was a slight downtick in those numbers. I've been through this rodeo many times over 38 years. We are just going to keep working to drive sales and drive value."

Investors still punished the often-Teflon stock on the view 2023 would bring further sales slowdowns.

"Like others in retail, Costco is experiencing a macro-driven dichotomy between consumables and discretionary comps, with the former 'squeezing out' the latter," Guggenheim analyst John Heinbockel explained in a note to clients. "More so than some, last year’s supply chain-inspired demand pullforward may have been a greater weight on the larger-ticket discretionary categories."

Heinbockel said he sees better same-store sales for Costco in 2023 as the retailer continues to seize market share from traditional grocery stores.

To be sure, 2023 is shaping up as an economic wildcard for companies to navigate. There are investment banks such as Goldman Sachs that see a 35% chance of a U.S. recession in 2023, although others are far more pessimistic.

TETERBORO, NEW JERSEY - AUGUST 18: Exterior view of a Costco store on August 18, 2020 in Teterboro, New Jersey. On Thursday, Costco Wholesale (COST) stock hit into the 90-plus percentile with an improvement to 93, up from 89 the day before. (Photo by Kena Betancur/VIEWpress)
Exterior view of a Costco store on August 18, 2020, in Teterboro, New Jersey. (Photo by Kena Betancur/VIEWpress)

"As we survey the prospects for the global economy, we see many reasons for concern, including continued challenges from the pandemic and the Russia-Ukraine war, high inflation, and headwinds from central bank rate hikes," Citi Chief Economist Nathan Sheets wrote in a recent note. "Reflecting these factors, the global economy is likely to endure 'rolling' country-level recessions during the coming year."

Citi expects the eurozone and U.K. to enter a recession by the end of this year. The U.S. stands to enter a recession by mid-2023, Sheets believes, as the full impact of higher interest rates from the Federal Reserve is felt by consumers and businesses.

Meanwhile, BNP Paribas has also outlined a tough road ahead for the global economy.

"We expect a downturn in global GDP growth in 2023, led by recessions in both the U.S. and the eurozone, with below-trend growth in China and many emerging markets," the BNP strategy team said in a note of its own this month.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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