May 2, 2022
We’ve talked about this before, but it just won’t go away – inflation.
Americans are staring at sticker shock on pretty much everything. The dollar doesn’t go as far as it did even a year ago. So how is it affecting our shopping habits?
We’ll examine this through three filters – staples, discretionary purchases, and big buys.
Traditionally, big purchases are the first cuts when consumers tighten up spending. That means homes, vehicles, and big projects like kitchen renovations are delayed. We’re seeing some of that with home refinances and new home construction dwindling.
But other big buys are still trending upward. For instance, the 90-day moving average on sport utility vehicle purchases is up 33%.
So, I don’t think consumers have cut out the big buys yet. However, that could change quickly if the economy worsens.
The “if I can afford it, it would be nice” purchases are the next set of expenses deferred (or even forgone entirely) when consumers cut spending. Items in this category include travel, concerts, and other splurges.
Interestingly, consumers don’t seem to be cutting much here either. I think psychology can help explain why. Over the last couple years, people have had travel, concerts, and other splurges restricted or they’ve put them off due to the pandemic. Now people are yearning for fun, and they’re putting their stimulus cash to work.
Over a one-year period, music festival attendance is up 175%, cruise bookings are up 164%, and casino visits are up 64%. The question is, how long will this last?
The last belt tightening we usually see is with consumer staples. Smaller spending on food, toiletries, medicines, and other needed supplies could be the telltale sign of doom.
Evidence of this behavior is often found in less-frequent supermarket visits, larger buys of generic brands, and so on. But we aren’t seeing a lot of that right now.
When examining firms like General Mills, Campbell Soup, Clorox, Kimberly Clark, Colgate Palmolive, Dollar General, Dollar Tree, and so on, they aren’t experiencing major traffic influxes. They’ve raised prices, but there haven’t been big consumer brand shifts.
To summarize, everyone is feeling the heat of higher prices. Searches for deals and coupons are rampant. Still, based on the data, consumers don’t seem to be sweating profusely quite yet.