A woman pushes a shopping cart across the food trail at Target in Annapolis, Maryland, on May 16, 2022, as Americans prepare for a summer shock of stickers as inflation continues to rise.
Jim Watson AFP | Getty Images
People still seem willing to pay money to travel, go to the movies and have a drink or two, even when rising prices and fears of a recession are forcing them to retire to other areas.
The way people spend their money is changing as the economy slows and inflation raises prices everywhere, including gas stations, grocery stores and luxury stores. The housing market, for example, is already feeling the pinch. Other industries have long been considered evidence of a recession and may even enjoy a shock as people start coming out again after descending during the pandemic.
However, buyers everywhere feel pressured. In May, the inflation rate, which tracks the prices of a wide range of goods and services, jumped 8.6% from a year earlier, the biggest jump since 1981. Consumer optimism about their finances and overall economic sentiment fell to 50 , 2% in June. the lowest registered level, according to the University of Michigan’s monthly index.
As gasoline and food prices soar, Brigette Engler, a New York artist, said she was less likely to drive to her second home in the north and cut back on outdoor meals.
“Twenty dollars looks extravagant at this point for lunch,” she said.
Here’s a look at how different sectors are doing in a slowing economy.
Movies, experiences linger
Concerts, movies, travel and other experiences that people missed during the height of the pandemic are among the industries in high demand.
Live Nation Entertainment, which owns concert halls and Ticketmaster, has not yet noticed that people’s interest in attending concerts has declined, CEO Joe Berchtold said at the William Blair Growth Stock conference earlier this month.
In blockbusters, blockbusters such as Jurassic World: Dominion and Top Gunn: Maverick also won strong box office sales. The film industry has long been considered “evidence of a recession,” as people who give up more expensive vacations or recurring Netflix subscriptions can often still afford movie tickets to escape for a few hours.
Alcohol is another category that is generally protected from economic downturns, and people go out to bars again after drinking more at home in the early days of the pandemic. Even when brewers, distillers and winemakers raise prices, companies are betting that people are willing to pay more for better quality alcohol.
“Consumers continue to trade up, not down,” Molson Coors Beverage CEO Gavin Hattersley said during a conversation about the company’s earnings in early May. It may seem counterintuitive, but he said the trend is in line with recent economic downturns.
Alcohol sales are also protected in part because prices do not rise as fast as the prices of other goods. In May, alcohol prices rose by about 4% from a year ago, compared with a jump of 8.6% for the overall consumer price index.
Major airlines such as Delta, American and United are also forecasting a return to profitability thanks to growing demand for travel. Consumers have largely absorbed higher prices, helping airlines cover rising fuel and other costs, although local bookings have fallen over the past two months.
It is unclear whether the race back to the sky will continue after the spring and summer trips. Business travel usually increases in the fall, but airlines may not be able to count on it, as some companies are looking for ways to cut costs and even announce layoffs.
The desire of people to go out and socialize again stimulates products such as lipstick and high heels, which were collected during the pandemic. This recently helped sales to retailers, including Macy’s and Ulta Beauty, which last year raised their full-year profit forecasts.
Luxury brands such as Chanel and Gucci are also proving more resilient, with wealthier Americans less affected by rising prices in recent months. Their challenges have recently become more concentrated in China, where pandemic restrictions continue.
But the fear is that this dynamic may change quickly and the short-term profits of these retailers may evaporate. More than eight out of 10 consumers in the United States plan to make changes to reduce costs over the next three to six months, according to a study by NPD Group, a consumer research firm.
“There is a tug-of-war between consumers wanting to buy what they want and the need for discounts based on higher prices hitting their wallets,” Marshall Cohen, NPD’s chief retail adviser, said.
Homes, valuables are squeezed out
The once-red-hot housing market is among those apparently affected by the delay.
Rising interest rates have reduced demand for mortgages, which is now about half what it was a year ago. The mood of home builders fell to its lowest level in two years after falling for six consecutive months. Real estate companies Redfin and Compass announced layoffs earlier this week.
“With demand up 17% below expectations in May, we don’t have enough work for our agents and support staff,” Redfin CEO Glenn Kelman wrote in an email to employees later posted on the company’s website.
For the retail sector in general, data from the Ministry of Trade also show a surprising decline of 0.3% overall in May compared to the previous month. This includes declines in online retailers and various retailers in stores, such as flower shops and office suppliers.
And while demand for new and used cars remains strong, automotive industry leaders are beginning to see signs of potential problems. As spending on new and used vehicles has double-digit over the past year, car and other vehicle dealers saw 4% sales decline in May from the previous month, according to the US Department of Commerce.
Ford Motor CFO John Lawler said this week that arrears on car loans are also starting to increase. Although the increase could be a signal of difficult times ahead, he said it was still not a concern, as arrears were low.
“We seem to be going back to average,” Lawler told a Deutsche Bank conference.
The restaurant industry is also seeing signs of potential problems, although the way restaurants are affected may vary.
Fast food chains have also traditionally done better in economic downturns, as they are more affordable and attract visitors with promotional offers. Some restaurant companies are also betting that people will continue to dine out while food prices rise faster.
The price of food outside the home rose by 7.4% in the 12 months ended May, but the price of food at home rose even faster, rising by 11.9%, according to the Bureau of Labor Statistics . Restaurant Brands International CEO Jose Seal and Wendy’s CEO Todd Penegor are among the fast food executives who highlight the difference as an advantage for the industry.
But McDonald’s chief executive Chris Kempczynski said in early May that low-income consumers had begun ordering cheaper items or shrinking their orders. As the largest restaurant chain in the United States in terms of sales, it is often considered an industry leader.
On top of that, traffic in the wider restaurant industry slowed to its lowest point of the year in the first week of June, according to market research firm Black Box Intelligence. This came after the number of visits also slowed in May, although sales rose 0.7% due to higher costs per visit.
Barclays analyst Jeffrey Bernstein also said in a research note on Friday that restaurants are accelerating discounts, a sign that they expect sales growth in the same store to slow. Among the chains that have introduced new deals to attract visitors are Domino’s Pizza, which offers pizzas at half price, and Wendy’s, which returned its Biggie Bag for $ 5.
Among those struggling to adjust to the change in consumer behavior are mass retailers such as Target and Walmart, which have issued cautionary guidelines for next year.
Target warned investors earlier this month that its profits for the second fiscal quarter would be hit as it reduced the number of people bought during the pandemic but no longer wanted, such as small appliances and electronics. The retailer of large boxes is trying to make room on the shelves for the products they are looking for now: beauty products, household goods and school supplies.
CEO Brian Cornell told CNBC that the company’s stores and website still see heavy traffic and a “very resilient customer” overall, despite a change in their buying preferences. Rival Walmart is also cutting back on less desirable items such as clothing, although the retail giant has said it is gaining a stake in groceries because shoppers want to save.
– Leslie Josephs, Lauren Thomas, Michael Wayland, John Rover, Sarah Wheaton and Melissa Repco contributed to the report.
Add Comment