Can i live without it?

A pedestrian carries shopping bags in the Herald Square area of ​​New York, US, on Wednesday, April 13, 2022.

Kala Kessler | Bloomberg | Getty Images

Sandy Magni is planning to take her teenage daughter to West Palm Beach, Florida, this summer, despite the hike in flight prices.

It won’t come cheap, but Magni doesn’t want to miss out on visiting her family. A 40-year-old semi-legal who lives in the Bronx and works in the financial district of Manhattan, finds that there are other things she can do without.

“I bring more lunch,” she said. “I can make coffee in the office.”

Magni is one of the millions of people who started transferring her money two years after the Covid-19 pandemic. Consumer prices rose at the fastest rate in four decades. The cost of everything from housing to lattes is rising, which begs the questions: When and where do consumers cut spending?

Some companies are already feeling the impact as they try to pass on higher costs to customers.

Amazon’s most recent quarterly sales grew at the slowest pace since the dot-com crash of 2001. Netflix lost subscribers in the last quarter for the first time in more than a decade. Video game maker Activision Blizzard, home appliance giant Whirlpool, and 1-800-Flowers reported weaker sales last quarter.

Meanwhile, companies from Ford to McDonald’s to Kraft Heinz to United Airlines have reported demand elasticity as consumers continue to spend despite higher prices.

Changes in consumer behavior are putting some executives on edge.

“We think the consumer is going to spend,” Macy’s chief financial officer, Adrian Mitchell, said in a JP Morgan retail report last month. “But are they going to spend on discretionary things we sell, or are they going to spend on a plane ticket to Florida, travel, or going to restaurants more?”

James Quincey, CEO of Coca-Cola, told CNBC last week that customers “are not going to swallow inflation indefinitely.”

Consumer spending, as measured by the Commerce Department, rose 1.1% seasonally adjusted in March. Spending remains strong even among low-income families with annual incomes below $50,000, according to Bank of America data. (The data excludes households without access to cards.)

But consumer confidence, a measure of shoppers’ sentiments about market conditions cited by The Conference Board, fell in April.

“We’re not really seeing many signs of a slowdown, despite the concerns that are happening in the market,” said Anna Chu, US economist at Bank of America.

One reason is the amount of money people looted during the pandemic. On average, low-income families have $3,000 in savings and checking accounts — nearly double what they had at the start of 2019, according to internal Bank of America data. This gave consumers a back-up, Zhou said, even when they pay more at the gas pump and the grocery store.

Only the good stuff

Many customers are not only spending, but finding themselves increasingly willing to show off, whether on a quality pair of jeans or a first-class seat on a Delta flight.

Apple on Thursday reported a “record level of upgrades” during the first three months of the year as users picked up more premium iPhones, but it cautioned about the impact of the shutdowns in China. And with automakers raising prices to reflect the tight inventory of global supply chain issues, car seekers have no fear.

John Lawler, Ford’s chief financial officer, said this week that despite the price increases, the company continues to see exceptionally strong demand for its latest products, ranging from the Maverick minivan, which starts around $20,000, to the Mustang Mach-E Electric crossover, which in the top trims. It can cost more than $60,000. It’s already sold out for 2022.

United, Delta and Southwest Airlines expect to profit in 2022 thanks to seemingly insatiable demand from customers after two years of a brutal pandemic, whether on leisure or business travel. Their employment restrictions prevent them from flying more.

The average price of a domestic round-trip ticket in the United States for travel between Memorial Day and Labor Day was $526, up more than 21% from 2019, according to data from Airlines Reporting Corp. from travel agencies.

“The demand environment is the strongest in 30 years in the industry,” United Airlines CEO Scott Kirby said in an April 20 earnings statement.

Travelers walk through Terminal A at Orlando International Airport on Christmas Day, Saturday, December 25, 2021.

Stephen M. Doyle | Orlando Sentinel | Getty Images

Levi Strauss & Co CEO Chip Berg told CNBC last month that despite the higher prices, consumers were not trading on the cheapest denim. Levy reiterated his forecast for fiscal year 2022, which calls for revenue growth between 11% and 13% over the previous year.

But there are signs that consumer appetite may be approaching its limits.

Domestic US airline bookings in the first two weeks of April fell 2% compared to the previous two weeks, the first decline during that timeframe this year, according to Adobe Analytics. In March, bookings were up 12% from 2019, but customer spending on those tickets was up 28%.

Restaurant traffic in March fell 1.7%, according to industry tracker Black Box Intelligence. Fine dining, casual and upscale family restaurants saw the biggest jump in sales growth, but sectors are still trying to recover from the pandemic lows.

Judy 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 City police officer, go out to dinner twice a week. Now that their meals and everything else cost more, it’s down to twice a month.

“I feel it in the pocket,” Klobus said.

Coming Challenges in 2023

There are other looming risks that could hinder consumer spending, even if the impact is not immediate. Rents are increasing, and property taxes haven’t fully reached rising home values.

The Federal Reserve aims to tackle inflation by raising interest rates. This translates into higher borrowing costs for homebuyers and credit card users.

In the fourth quarter, US credit card balances rose by $52 billion, the largest quarterly jump in 22 years for New York Federal Reserve data, but still down $71 billion from the end of 2019.

US credit card delinquency rates have risen to 1.62% from a more than three-decade low of 1.48% in the second quarter of last year, still far from the 6.6% peak reached in the first quarter of 2009, which is the end of the tail The great. Recession, according to the Federal Reserve Bank of St. Louis.

“For this year, consumer spending should remain resilient,” said Chu, an economist at Bank of America. “For next year, it’s less certain – certainly as the second half of next year approaches, the risks of a further slowdown could emerge in the consumer.”

I am only complaining about the prices.

Cindy Maher

Bloomfield, Connecticut

Boeing CEO Dave Calhoun said Wednesday that demand for new aircraft from airlines is recovering thanks to renewed demand for travel. However, it is unclear whether Americans will continue to squander flights in the coming months or if they will reach the point where they will cut back.

“In that second year, when inflation starts hitting consumers’ pockets, that’s when those numbers really start to affect us,” Calhoun said in an interview with CNBC’s “Squawk on the Street.”

Right now, many consumers, like Cindy Maher, 58, who owns a leadership development consultancy and lives in Bloomfield, Connecticut, feel comfortable enough to maintain their spending habits.

“I’m not cutting back,” she said. “I’m just complaining about the prices.”

Maher said she noticed about 7 loaves of bread and it cost $70 to fill her car tank. But, she said, in her dual-income family, she can afford these costs.

“My heart goes out to those who have low-paying jobs,” she said.

– CNBC channel Amelia Lucas And John Roseveer Contribute to this article.

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