Are the prices too high? Consumers are starting to think so

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For most of the year, American consumers weathered the recurring sticker shock at their favorite retailers, reluctantly paying for big-name brands and sometimes opting for cheaper options rather than returning home empty-handed. But a consumer rebellion against inflation is brewing, and spending could see a sluggish period ahead.

Last month, the net share of shoppers shocked by stickers who walked away instead of making purchases rose to 9.9% from 8.7% in August, according to data from its panel’s Morning Consult survey. nationally representative monthly magazine of 2,200 US adults, which is weighted to reflect product categories in the consumer price index. Many consumers also continued to trade at high rates.

The numbers suggest the fourth quarter could be a turning point for consumer spending. Over the past few months, a weighted average of the inverted indices of price sensitivity and substitutability – collectively called the Consumer Purchasing Power Barometer – has been used to predict movements in real retail sales and real personal consumption expenditure. . In this case, the numbers suggest further inflation-adjusted declines from October.

Of course, the US consumer economy has looked vulnerable since the Federal Reserve began raising interest rates to contain the highest inflation in 40 years. Yet household spending has mostly defied the pessimists so far. Bank of America Corp. Chief Executive Brian Moynihan said on Monday that consumers “remained resilient with solid, albeit slower-growing, spending levels and still maintaining high deposit amounts.” They have accumulated large cash cushions during the Covid-19 pandemic, and they have the balance sheets to take on more debt if necessary. Real wages for workers have indeed fallen, but the labor market remains so hot that most people do not fear for their livelihoods.

The result is that people start cutting back on their spending. For example, restaurant sales per customer appear to be struggling to keep up with “out-of-home food” inflation in the Consumer Price Index, according to monthly transactions data from Bloomberg Second Measure. After a “reopening” frenzy after the first year of the pandemic, sales growth normalized earlier this year and could now slip on a real-world basis as consumers choose to dine at home instead. Here’s data from the Bloomberg Second Measure panel for Darden, which has a portfolio that includes Olive Garden Italian Restaurant, Yard House and The Capital Grille, as well as Bloomin’ Brands, which includes Outback Steakhouse and Carrabba’s Italian Grill.

Somewhat more surprisingly, there are signs that supermarket spending may not be keeping pace with inflation.

Costs are also rising for businesses, so profit margins will naturally shrink if they cannot pass the higher costs on to consumers. Still, Wall Street analysts continued to post an upbeat earnings outlook for S&P 500 companies, including vulnerable consumer discretionary companies. Consensus analyst estimates suggest quarterly earnings will mostly be flat.

So will consumers and Wall Street wake up abruptly in the months and quarters to come?

Scott Brave, the head of economic analysis who created the Morning Consult Consumer Purchasing Power Barometer with economic analyst Kayla Bruun, thinks the data could indeed signal an inflection point. “If this trend continues as we’ve seen over the past couple of months, PCE growth is getting to the point where we’re going to be talking about not just slow growth but potentially decline,” he told me. – he says over the phone. “It flashes a red signal.” He noted that shock aversion to stickers, which at first mainly affected the habits of low-income households, is now manifesting itself across all income levels.

None of this is entirely inconsistent with the idea of ​​a “soft landing” that Fed Chairman Jerome Powell referred to – perhaps some sort of further slowdown or shallow recession – at provided that consumption simply continues on its current path and inflation moderates, giving the Fed breathing room to stop raising interest rates. But as Brave told me, the risk is that the consumer economy will start to look fragile enough to struggle to withstand another shock. Ultimately, it’s impossible to know where such a shock could come from, but with the war still raging in Ukraine, slowing growth in Europe and China, and financial markets on edge in the world, anyone betting on the resilience of American consumers may want to buckle up. .

More from Bloomberg Opinion:

• Inflation has yet to hurt consumer goods groups: Andrea Felsted

• No respite for the Federal Reserve in the event of high inflation: editorial

• Welcome to the last hurray for US income: Jonathan Levin

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Jonathan Levin has worked as a Bloomberg reporter in Latin America and the United States, covering finance, markets, and mergers and acquisitions. Most recently, he served as the company’s Miami office manager. He holds the CFA charter.

More stories like this are available at bloomberg.com/opinion

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