A pedestrian carries shopping bags in the Herald Square area of New York, USA, on Wednesday, April 13, 2022.
Kala Kessler Bloomberg | Getty Images
Sandy Magni plans to take her teenage daughter to West Palm Beach, Florida, this summer, although airfare prices are rising.
It won’t be cheap, but Magni doesn’t want to miss her family’s visit. The 40-year-old assistant, who lives in the Bronx and works in the financial district of Manhattan, finds that there are other things she can do without.
“I bring more lunch,” she said. “I can make coffee in the office.”
Magni is one of millions of people starting to move where her dollars go after two years of the Covid-19 pandemic. Consumer prices have risen with the fastest video in four decades. The price of everything from housing to lattes is rising, raising questions: When and where will consumers cut costs?
Some companies are already feeling the impact as they try to pass on higher costs to customers.
Amazon’s last quarterly sales have grown at the slowest pace since the dotcom crash in 2001. Netflix lost subscribers in the last quarter for the first time in more than a decade. Video game maker Activision Blizzard, home appliance giant Whirlpool and 1-800-Flowers reported weaker sales in the last quarter.
Meanwhile, companies from Ford to McDonald’s to Kraft Heinz to United Airlines are reporting steady demand as consumers continue to spend despite higher prices.
Changes in consumer behavior are on the verge of some managers.
“We believe the consumer will spend,” Macy’s CFO Adrian Mitchell told JP Morgan’s Retail Round-Up last month. “But will they spend on discretionary items we sell, or will they spend on a plane ticket to Florida, or will they travel, or will they go to more restaurants?”
Coca-Cola CEO James Quincy told CNBC last week that customers would not “swallow inflation indefinitely.”
Consumer spending, measured by the Ministry of Commerce, rose by a seasonally adjusted 1.1% in March. And spending remains high even among low-income households with annual incomes below $ 50,000, according to Bank of America. (Data excludes households that do not have access to cards.)
But consumer confidence, a measure of consumer sentiment about market conditions reported by The Conference Board, declined in April.
“In fact, we don’t see many signs of slowdown, despite fears in the marketplace,” said Anna Zhou, an American economist at Bank of America.
One reason is the amount of money people threw away during the pandemic. On average, low-income households have $ 3,000 in their savings and current accounts – almost twice as much as they had in early 2019, according to Bank of America’s internal data. This gave consumers a buffer even when they pay more at the gas station and grocery store, Zhou said.
Only the good things
Many customers not only spend, but are increasingly inclined to scatter, whether for a pair of high-end Levi’s jeans or a first-class seat on a Delta Air Lines flight.
Apple on Thursday reported a “record level of upgrades” in the first three months of the year, as consumers opted for its more premium iPhone, but warned of the impact of the blockade in China. And as carmakers raise prices to reflect limited stocks of global supply chain problems, car seekers are not afraid.
Ford CFO John Lawler said this week that despite price increases, the company is still seeing extremely strong demand for its latest products, ranging from the small Maverick pickup, which starts at about $ 20,000, to the Mustang Mach-E electric crossover. which in higher configurations can cost over $ 60,000. It is already sold out for the 2022 model year.
United, Delta and Southwest Airlines forecast profits for 2022 thanks to seemingly insatiable customer demand after two brutal pandemic years, both for leisure and business travel. Their own personnel constraints prevent them from flying even more.
Domestic airfare in the United States for a return trip between Remembrance Day and Labor Day averaged $ 526, up 21% from 2019, according to Airlines Reporting Corp. from travel agencies.
“The demand environment is the strongest in my 30 years in the industry,” United Airlines CEO Scott Kirby said in a statement on April 20.
Travelers pass through Terminal A at Orlando International Airport on Saturday, December 25, 2021.
Stephen M. Dowell Orlando Sentinel Getty Images
Levi Strauss & Co. CEO Chip Bergh told CNBC last month that despite rising prices, consumers are not trading in cheaper denim. Levi confirmed its outlook for fiscal 2022, which requires revenues to grow between 11% and 13% over the previous year.
But there are signs that consumers’ appetites may be close.
Reservations of local airlines in the US in the first two weeks of April fell by 2% compared to the previous two weeks, which is the first decline for such a period this year, according to Adobe Analytics. In March, bookings increased by 12% compared to 2019, but customers’ costs for these tickets increased by 28%.
March restaurant traffic fell 1.7 percent, according to industrial tracker Black Box Intelligence. Sophisticated dining, luxury casual and family dining have seen the biggest jump in sales growth, but the segments are still trying to return from the pandemic lows.
Jodie Clobus, a 58-year-old mother of three and grandmother of four who lives outside of Albany, New York, told CNBC that she and her husband, a retired New York City police officer, dine out twice a week. Now that their food, like everything else, costs more, they have reduced it to twice a month.
“I can feel it in my pocket,” Clobus said.
Challenges lie ahead in 2023
There are other risks that can reduce consumer costs, even if the impact is not immediate. Rents are rising and property taxes have not fully caught up with rising house values.
The Federal Reserve aims to tackle inflation by raising interest rates. This means higher borrowing costs for home buyers and credit card users.
In the fourth quarter, US credit card balances grew by $ 52 billion, the biggest quarterly jump in 22 years from the Fed’s data in New York, but they are still declining by $ 71 billion compared to the end of 2019.
The credit card insolvency rate in the US rose to 1.62% from the lowest level in more than three decades from 1.48% in the second quarter of last year, still far from the peak of 6.6% reached in the first quarter of 2009, the tail of the Great Recession, according to the Fed.
“Consumer spending must remain sustainable this year,” said Zhou, an economist at Bank of America. “Next year is a little less certain – and certainly by the second half of next year, then there may be a risk of more delays for consumers.
I’m just complaining about the prices.
Cindy Maher
from Bloomfield, Connecticut
Boeing CEO Dave Calhoun said on Wednesday that demand for new aircraft from airlines was recovering thanks to the resumption of travel demand. However, it is unclear whether Americans will continue to waste time traveling in the coming months or reach a point where they will decline.
“This second year, when inflation is starting to affect consumers’ pockets, then those numbers are really starting to matter to us,” Calhoun said in an interview with CNBC’s Squawk on the Street.
At the moment, many consumers, such as Cindy Maher, 58, who owns a leadership development consulting firm and lives in Bloomfield, Connecticut, feel comfortable enough to maintain their spending habits.
“I will not cut,” she said. – I’m just complaining about the prices.
Maher said she noticed bread for nearly $ 7 and costing $ 70 to fill the tank of her car. But she said she could cover those costs in her two-income household.
“My heart is with those who have low-paid jobs,” she said.
– Amelia Lucas and John Rover of CNBC contributed to this article.
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