Consumers spent less on clothing and electronics in recent months, while spending the same or more on groceries and other essentials, The Wall Street Journal reported.
Costco agreed, saying shoppers are buying more groceries and necessities but turning away from big-ticket items. More consumers are coming to warehouse stores and Costco instead of pricier venues, Costco CFO Richard Galanti said in an analysts’ call this month.
The COVID War’s buying boom lofted retailers’ revenues as homebound consumers bought electronics, kitchen gadgets, home improvement supplies, and other items that kept them occupied during the lockdown.
Freed from COVID restrictions, Americans are now spending on travel, dining out, and other experiences while slashing spending on goods as they cope with lingering inflation and rising interest rates.
As spending patterns rebalance to pre-COVID norms, consumers could transfer as much as $450 billion from goods to services, chief economist Jeffrey Roach at LPL Financial said to the WSJ.
When buying merchandise, however, consumers “are behaving as if they already are in a recession,” Kroger CEO Rodney McMullen told the WSJ.
Shoppers are shifting to lower-cost store brands and buying smaller-size packages of some items such as paper products, he said.
Best Buy and Macy’s have said they expect sales to decline this year as they did in 2022. Macy’s sales dove 32 percent in its most recent quarter and could fall 3 percent overall this year, the company has warned.
In contrast, Target and Walmart have seen sales of food and beverages edge up recently, they said.
Kroger’s has seen more customers coming from higher-income households as they cut back on restaurant fare and seek lower-priced items for meals at home, McMullen noted.
His chain posted sales 6.2 percent higher in the most recently completed quarter than a year earlier, almost keeping pace with inflation. Revenue was $34.82 billion for the period.
Costco sales moved up 6.5 percent in the quarter that ended 12 February, slightly missing analysts’ expectations.
However, food prices at grocery stores shot up 11.3 percent in January, year on year, indicating that revenue among Kroger and other grocers still is lagging rising costs.
Some retailers see hope in January’s 3-percent bump in consumer spending that the U.S. commerce department recently reported.
Consumer spending should remain strong while the labor market is tight and wages keep moving up, LPL’s Roach told the WSJ.
TRENDPOST: As long as inflation’s rate continues to surpass that of pay increases, consumers will continue to cut non-essential spending—especially now that they have tapped out their savings and maxed out their credit cards, as we have reported in “Americans Drain Their Savings to Keep Spending” (12 Oct 2022) and “Credit Card Debt Nears $1 Trillion, Sets Record” (7 Feb 2023).
Because consumer spending defines some 70 percent of the U.S. economy, any reduction in those expenditures means lost jobs, translating into additional lost spending. As consumers cut back, the U.S. economy marches a little faster toward recession.
And now with forecasts for much higher interest rates, the economy will decline more sharply as more people are fired from their jobs… which equals a continuing decline in consumer spending.