If the U.S. economy is a never-ending series of waves that bring in trillions of dollars each year, then Home Depot is in a troubled situation.

When the pandemic sparked massive spending on home improvement items, Home Depot rode the wave and was able to increase its sales dramatically. As consumer habits began to move back toward pre-pandemic patterns, Home Depot had to reposition itself to ride the receding wave.

And as the company navigates the uncertain seas in search of its next growth spurt, Wall Street is watching.

The US Federal Reserve’s campaign to combat inflation, which included raising key interest rates to cool the economy, dampened consumer spending and slowed the momentum of the real estate market.

However, many economists expect the Fed to cut its benchmark interest rate in September, which would mean lower borrowing rates across the economy. Home Depot said in a recent conference call with analysts that it expects the decline to boost consumer spending.

That’s possible, but not guaranteed, says Ana Garcia, an analyst at the New York-based consulting firm CFRA, which tracks and analyzes the company’s performance. “Home Depot is predicting increasing demand … but we don’t see any clear evidence of that yet.”

The Vinings-based home improvement giant reported revenue of $43.2 billion for its most recent fiscal quarter, but that includes revenue from the recently acquired SRS Distribution. Home Depot paid $18.3 billion in March for SRS, which sells its products to home improvement contractors — particularly roofers — landscapers and pool builders.

When comparing the business units operated by Home Depot last year, sales fell by 3.3 percent.

It was the seventh consecutive fiscal quarter with a year-on-year decline in sales.

Between the beginning of 2020 and the end of 2022, Home Depot’s annual sales increased by $45 billion – a 40% increase from pre-pandemic levels.

“Home improvement stores have done very well during the coronavirus pandemic as their stores remained open and people who stayed home and had time on their hands turned to home improvement projects,” said Carol Levenson, an equity analyst at Gimme Credit, a New York-based investment service. “Recently, sales have been declining as consumers shift from spending on goods to spending on experiences.”

In addition, loans have become more expensive over the past two years due to high interest rates, which has made consumers cautious about making expensive purchases, she said.

In a recent conference call with reporters and analysts, Home Depot CEO Ted Decker said interest rates have contributed to a sense of uncertainty about the country’s economic trajectory and caused consumer hesitation.

Nevertheless, company representatives cite several reasons for optimism.

First, the market is huge and fragmented, giving an aggressive player ample room to expand even if it is already the largest. Even Home Depot, which had annual sales of about $153 billion last year, claims to own only 17 percent of what the company says is a nearly $1 trillion “addressable market.”

Second, although many households have made savings, most are in a good financial position, even if they are worried about interest rates and inflation, Decker said.

Most of Home Depot’s business comes from homeowners, either do-it-yourselfers or those who pay contractors to do the work. And while the housing market has been thrown into turmoil by the pandemic and its aftermath, rising mortgage rates have led to fewer sales but higher prices in 2022 and 2023.

This gives owners more security, Decker told analysts. “The underlying long-term fundamentals that support demand for home improvement projects are strong.”

And Home Depot officials are also confident that the company is outperforming its competitors, especially its second-largest rival, Lowe’s.

North Carolina-based Lowe’s did not respond to a request for comment.

Like Home Depot, Lowe’s announced last week that it was cutting its earnings and sales forecasts. The company’s comparable sales fell 5.1 percent from a year ago.

Gimme Credit revised its rating on Lowe’s and rates the stock as a stock that will underperform the overall market. Gimme Credit rates Home Depot as a stock that will outperform the overall market.

Markets have largely recovered since Fed Chairman Jerome Powell delivered his annual address to the Federal Reserve Bank of Kansas City’s annual summit in Jackson Hole, Wyoming, on Friday, as investors expect a rate cut next month.

Home Depot and Lowe’s shares have reacted. Home Depot shares were up about 2.5 percent through Monday afternoon compared to Thursday’s closing price, and Lowe’s stock price was up about 4.4 percent during that time.

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