Walmart, America’s largest retailer by total sales, expressed a somber concern in its third-quarter earnings report: Consumer spending is weakening.

The retail giant reported better-than-expected earnings and sales for the fiscal quarter ending Oct. 31 but noted a “sharper falloff” in sales during the last two weeks of October.

CFO John David Rainey blamed higher interest rates, depleted savings, and the resumption of student loan payments as the main culprits for the decline.

“We are more cautious on the consumer than we were 90 days ago at this time,” he said in an interview after the company’s earnings call.

“The takeaway for us is that we’re seeing strength, we’re seeing share gains versus others, but there still is pressure on the consumer,” he said. This trend has forced Walmart to “rethink the health of the consumer” moving forward.

The company raised its profit outlook for the fiscal year, but only modestly and not as much as analysts expected. In other words, Walmart is bracing for a potentially weaker holiday season.

Walmart still fared better than some of its competitors, which are struggling to move higher-end products off their shelves.

It’s not just Walmart

Retailers like Target and Home Depot are warning of a “discretionary recession” as cash-strapped consumers re-evaluate their spending habits. Both companies reported a sizable drop in same-store sales last quarter, which means customers made fewer purchases at their existing locations.

Luxury brands are also feeling the heat. On Nov. 16, Burberry reported disappointing earnings results in the first half of its fiscal year and warned of a spending slowdown in the luxury market.

“The slowdown in luxury demand globally is having an impact on current trading,” Burberry said in its earnings report. “If the weaker demand continues, we are unlikely to achieve our previously stated revenue guidance for FY24.”

Meanwhile, LVMH, the biggest luxury group and owner of Christian Dior, reported last month that it missed earnings estimates for its fashion and leather goods products.

As consumer spending goes, so does the economy

There’s a reason why retail earnings make front-page news: They’re a proxy for consumer spending, which drives more than two-thirds of the U.S. economy. During difficult economic times, consumers often become frugal or trade down to cheaper stores.

As spending dries up, so does the rest of the economy.

Analysts warn that consumer spending will likely slump into the holidays and possibly extend into next year.

Credit rating agency Fitch Ratings expects real consumer spending to grow at an annualized rate of 1.2% in the fourth quarter, down sharply from 4.3% in the third quarter. Spending will likely contract by 0.8% in the first quarter of next year, Fitch warns.

“Consumers are tightening their belts following a surge of spending in prior months,” said Bloomberg economist Estelle Ou. “Consumer spending has been a key driver of economic activity until now, and the deceleration supports our view that a downturn in economic activity is likely.”