Executives who run some of the world’s largest retailers, manufacturers and consumer products makers say they are seeing signs that people are becoming less willing to absorb price increases.
Altria, the maker of Marlboro, said cigarette smokers are trading lower for discount brands as higher gasoline prices reduce their disposable income. Sleep Number Corp and Tempur Sealy International Inc. From low demand for mattresses and some expensive items. 1-800-Flowers.com Inc. said. She believes consumers are spending less on packages, in part because they are concerned about rising inflation.
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Strong consumer spending has supported the US economy through much of the pandemic, as government stimulus programs related to the coronavirus, rising wages and a recovery in the US labor market helped families push the unemployment rate down near pre-pandemic levels.
Companies that made everything from baby wipes to washing machines were able to raise prices without affecting demand too much. Now, some executives and analysts say Americans’ purchasing power is shrinking due to inflation, which in March reached the highest annual rate since 1981. Grocers and other sellers of food and basic goods, for example, say shoppers have been increasingly looking for products Discounted price, lower prices. cost brands.
“U.S. consumer confidence has been shaken by rampant inflation and geopolitical uncertainty in recent months,” Tempur Sealy CEO Scott Thompson told analysts on Thursday.
Consumer spending accounts for the bulk of US economic output, and economists are watching closely how Americans deal with high levels of inflation. And although the country’s GDP contracted in the first quarter, with the trade deficit widening and inventory investment by businesses slowing, economists expect consumer spending to remain resilient in the coming months.
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Government data shows that people have ramped up their purchases of travel and accommodation recently. However, March was the second month in a row that spending on durable goods such as cars and appliances fell on a seasonally adjusted basis.
“You’ll see a higher rate of consumer fatigue with some of these price increases,” said Jonathan Matusevsky, an analyst at Jefferies. “The good news is that consumers want to spend on travel and entertainment, but would they feel healthy from a financial perspective to actually do so?”
Not all companies are experiencing a slowdown, and some, including home-goods makers like Procter and Gamble, say consumers continue to pay for more expensive alternatives to staples like laundry detergent and razors. P&G recently reported its biggest quarterly growth in decades, and Barbie manufacturer Mattel posted record sales in the first quarter.
“We are in steady growth,” Mattel CEO Ynon Kreiz said Wednesday in a call with analysts. “This was a great start to the year.”
The Coca-Cola Company announced that sales volumes rose across all of its operating segments in the three months ending April 1, even as prices rose from a year earlier. James Quincey, Coca-Cola CEO, said Monday that it’s important for the beverage giant to have premium products with “the fulcrum of affordability and entry-point opportunities” where consumer budgets are under pressure.
McDonald’s executives said that despite the high menu prices, the company wants to remain good value for diners. Chief Financial Officer Kevin Ozan told analysts Thursday that one of the things helping the fast food chain is that food prices at home have been increasing more than food away from home.
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Amazon.com Inc executives said: They saw no signs of weak consumer demand, even after the retail giant reported its slowest quarterly sales growth in nearly two decades. Amazon hopes that any consumer tug of war will work in its favour.
“We are aware of the current inflationary environment and its impact on household budgets,” Amazon Chief Financial Officer Brian Olsavsky told analysts and investors Thursday. “A lot of times, that’s when people come to Amazon.”
Online retailers are also grappling with shoppers directing more of their spending toward physical stores as more people are vaccinated and back to normal routines two years after the health crisis.
Some manufacturers such as Whirlpool Corp. and barbecue maker Weber Inc. Their sales are disrupted by a lack of inventory and supply, not weak demand.
Mark Bitzer, Whirlpool CEO, said sales in the fourth quarter, while down from a year ago when closed consumers in North America were touting home improvements, were still well above pre-pandemic levels. He said factors including people using appliances more at home and the rising age of housing stock should fuel demand for the company’s dishwashers, refrigerators and other products.
“We remain fully confident that the underlying strength of consumer demand trends will remain the same over several years,” Mr. Bitzer said Tuesday on an earnings conference call.
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Raising prices for consumers may have its limits. Some companies in recent weeks have raised sales targets but have either stuck to or softened earnings forecasts. This is because price increases may not be enough to offset rising costs, analysts say.
A research note by Jefferies published Thursday notes that Americans across income levels are shifting their spending plans as a result of inflation. She said that in a recent survey of nearly 3,500 consumers in the United States, more than 70% said they had turned to cheaper alternatives when it came to food and household goods. Nearly 40% said they delay purchasing expensive items such as travel, furniture and electronics.
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Macy’s Inc chief financial officer, Adrian Mitchell, said consumer demand will likely remain strong throughout the year, but retailers will likely have to increase the discount to win their business.
“There is still uncertainty. There is still pressure on the consumer,” Mitchell said at a retail conference early last month. “Although the consumer is in good health, we see inflation rising more than we expected in the year.”