The world’s biggest retailer joined the largest home improvement chain yesterday to give warning of a sharp slowdown as Americans tightened their belts amid the growing debt crisis.

Lee Scott, the chief executive of Wal-Mart, the biggest retailer in the world, told investors that profits over the full year would be lower than expected because “many customers are running out of money towards the end of the month”.

Wal-Mart shares closed more than 5 per cent lower, dragging down Wall Street’s benchmark index, the Dow Jones industrial average. At the same time, Home Depot, the world’s largest home improvement chain, said profits during the second quarter had slid by 15 per cent. American homeowners are struggling to cope with 16 consecutive interest rate rises over the past few years.

Home Depot also alarmed the stock market after giving warning that should it not be able to sell its wholesale distribution business as planned, it will have to halve the company’s proposed $22.5 billion (£11.1 billion) share buyback programme.

The company, which has 2,200 stores in the United States, Canada, Mexico and China, is trying to sell its distribution business for $10.3 billion to private equity. But last week the tightening credit markets raised doubts that the sale would go through and the firm gave warning that it may have to reduce the price of the business. The shares closed down almost 5 per cent.

Consumer demand is the key driver for economic growth in the American economy and the weakness in profitability among retailers comes as some economists are cutting their growth forecasts for gross domestic product in the second half of the year.

Wal-Mart said that demand has been so poor that it has been forced to cut the prices of thousands of product lines by as much as 50 per cent to boost business. It also gave warning that while sales of low margin goods such as groceries were healthy, sales of higher margin products such as clothes had been poor.

Tom Schoewe, the finance director, said there was evidence of increased shoplifting by customers and theft by staff, activity that normally occurs when consumers are feeling financially squeezed. “If you think about the macro environment, where customers are under pressure, there’s generally a correlation between theft and macroeconomic pressure. Unfortunately, that’s what we’re seeing,” he said.

Wal-Mart’s earnings for the second quarter of the year still rose to $3.1 billion from $2.08 billion a year earlier, flattered by charges associated last year with disposal of German stores. Like-for-like sales for the period rose 1.9 per cent.

Over the same period, Home Depot earned $1.59 billion, compared with a profit of $1.86 billion for the same period a year earlier. Revenue in the second quarter fell 1.8 per cent to $22.18 billion, compared with $22.59 billion for the same period last time.

Mr Scott explained that higher fuel prices, interest rates and utility bills were hurting sales in markets such as Mexico and Canada.

Charles Grom, a JPMorgan analyst, said: “While we still think Wal-Mart is taking the appropriate steps to ‘right the ship’ we think the turnaround has been extended and today’s unfavorable macro backdrop is creating a slippery slope for Wal-Mart to climb.”

Home Depot said that it expected weak demand to continue next year.

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