Calla Kessler | Bloomberg | Getty Images Sandy Magny plans to take her teenage daughter to West Palm Beach, Florida, this summer, although airfare is on the rise. It will not be cheap, but Magny does not want to miss the opportunity to visit her family. The 40-year-old lawyer, who lives in the Bronx and works in the financial district of Manhattan, discovers that there are other things he can do without. “I bring more lunch,” he said. “I could make coffee in the office.” Magny is one of the millions of people who are starting to change where her dollars are going after two years of the Covid-19 pandemic. Consumer prices have risen with the fastest clip of the last four decades. The cost of everything from housing to a latte is on the rise, raising questions: When – and where – will consumers cut costs? Some companies are already feeling the impact as they try to convey higher costs to customers. Meanwhile, companies from Ford to McDonald’s, Kraft Heinz and United Airlines have reported strong demand as consumers continue to spend despite higher prices. Changes in consumer behavior have some executives at the forefront. “We believe the consumer will spend,” Macy’s chief financial officer Adrian Mitchell told JP Morgan Retail Round-Up last month. “But are they going to spend on discreet products we sell, or will they spend on a plane ticket to Florida, travel or more restaurants?” Coca-Cola CEO James Quincey told CNBC last week that customers would not “swallow inflation indefinitely.” Consumer spending, as measured by the Ministry of Commerce, increased seasonally adjusted by 1.1% in March. And spending remains strong even among low-income households with annual incomes of less than $ 50,000, according to Bank of America. (Data does not include households that do not have access to cards.) But consumer confidence, a measure of buyers’ sentiment about market conditions reported by The Conference Board, fell in April. “We do not really see many signs of slowing down, despite market concerns,” said Anna Zhou, an American economist at Bank of America. One reason is the amount of money people withdrew during the pandemic. On average, low-income households have $ 3,000 in savings and current accounts – almost double what they had in early 2019, according to Bank of America insiders. That has given consumers a stockpile, even when they pay more at the gas station and at the grocery store, Zhou said.
Only good things
Many customers not only spend, but find themselves increasingly willing to indulge, whether in high-quality Levi’s jeans or a first-class seat on a Delta Air Lines flight. Apple reported a “record upgrade level” in the first three months of the year on Thursday as users opted for its most premium iPhones, but warned of the impact of the lockdown in China. And as automakers push up prices to reflect tight inventories from global supply chain issues, those looking for cars are not afraid. Ford Chief Financial Officer John Lawler said this week that despite price increases, the company is still seeing extremely high demand for its newest products, ranging from the small Maverick pickup, which starts at around $ 20,000, up to the electric crossover Mustang Mach-E, which in higher versions can cost well over $ 60,000. It is already sold out for the model year 2022. United, Delta and Southwest Airlines are forecasting profits for 2022 thanks to the seemingly insatiable demand from customers after two brutal years of pandemic, both for leisure and business travel. Their own staffing restrictions further prevent them from flying. Return domestic U.S. airfare for Memorial and Labor Day travel averaged $ 526, up more than 21% from 2019, according to data from Airlines Reporting Corp. from travel agencies. “The demand environment is the strongest I have in the industry in 30 years,” United Airlines CEO Scott Kirby said in a profit announcement on April 20. Travelers walk to Terminal A at Orlando International Airport on Christmas Day, Saturday, December 25, 2021. Stephen M. Dowell | Orlando Sentinel | Getty Images The CEO of Levi Strauss & Co. Chip Bergh told CNBC last month that despite rising prices, consumers were not trading in less expensive jeans. Levi has confirmed its outlook for fiscal 2022, which calls for revenue growth of between 11% and 13% over the previous year. However, there are signs that consumers’ appetites may be approaching their limits. Domestic airline bookings in the U.S. in the first two weeks of April were down 2% from the previous two weeks, the first drop in such a timeframe this year, according to Adobe Analytics. In March, bookings increased by 12% from 2019, but customer spending on these tickets increased by 28%. March restaurant traffic fell 1.7%, according to monitoring firm Black Box Intelligence. Fine restaurants, luxury casual and family restaurants have made the biggest leap in sales growth, but departments are still struggling to keep up with low pandemic levels. Jodi Klobus, a 58-year-old mother of three and grandmother of four who lives outside Albany, New York, told CNBC that she and her husband, a retired New York police officer, used to dine outside twice a week. Now that their meals, and everything else, cost more, they have been reduced to twice a month. “I feel it in my pocketbook,” Clobus said.
Challenges for 2023
And there are other risks that could reduce consumer spending, even if the impact is not immediate. Rents are rising and real estate taxes have not fully covered the value of skyrocketing homes. The Federal Reserve aims to tackle inflation by raising interest rates. This translates into higher borrowing costs for home buyers and credit card users. In the fourth quarter, US credit card balances increased by $ 52 billion, the largest quarterly jump in 22 years of New York Fed data, but are still down $ 71 billion by the end of 2019. Credit card delinquency rates in the US rose to 1.62% from a three-year low of 1.48% in the second quarter of last year, well below the 6.6% high in the first quarter. 2009, at the end of the Great Recession, according to the Fed of St. “For this year, consumer spending needs to remain resilient,” said Zhou, an economist at Bank of America. “For next year, it’s a little less certain – and certainly in the second half of next year, then there may be a risk of a further slowdown in consumers.” I’m just complaining about the prices. Cindy Macher of Bloomfield, Connecticut Boeing CEO Dave Calhoun said on Wednesday that demand for new planes from airlines was recovering thanks to a resurgence in travel demand. However, it is unclear whether Americans will continue to exceed their travels in the coming months or reach a point of decline. “That second year, when inflation is starting to affect consumers’ pockets, is when those numbers really start 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, a 58-year-old owner of a leadership development consulting firm based in Bloomfield, Connecticut, feel comfortable enough to maintain their spending habits. “I do not reduce,” he said. “I’m just complaining about the prices.” Maher said she noticed almost $ 7 loaves of bread and that it cost $ 70 to fill her car tank. But she said that in her two-income household, she could absorb those expenses. “My heart goes out to those who have low-paying jobs,” he said. – CNBC’s Amelia Lucas and John Rosevear contributed to this article.
