Why the Holidays Could Be a ‘Last Hurrah’ for a Stretched U.S. Consumer | Global News Avenue

This year’s results will exceed many retailers’ expectations. But several companies say they are squeezing more money from exhausted shoppers, and economists say demand may dry up next year.

Stronger-than-expected sales this fall have encouraged companies such as gap (gap), Ralph Lauren (RL), TJX Corporation (Tian Jiaxing), Elf beauty (Very low frequency), home depot (HD) and Walmart (WMT) raised its year-end forecast even as executives highlighted signs of consumer nervousness.

Company leaders say shoppers are choosing cheaper brands, stocking up during sales and delaying big-ticket purchases. Economists say that after years of stubborn inflation, many Americans are working hard to pay for basic expenses, while wealthy consumers are putting off big purchases.

“After the pandemic, people are buying in bulk. But you’ve reached a saturation point,” said Bernie Baumohl, chief global economist at the Economic Outlook Group. “You have all the flat-screen TVs you need, (all) car. ”

Consumer spending gradually increases

American Feelings about the economy improve The University of Michigan’s Consumer Sentiment Index shows that consumer confidence has remained below pre-pandemic levels in recent months. Economists have surprised by the increase Core retail spending rose 0.4% in October, according to Commerce Department data.

Meanwhile, the New York Fed said credit delinquency rates remained “elevated” in the third quarter as credit card balances increased.

Brands profit by catering to the public’s desire for low prices. Ernie Herrman, CEO of the parent company of Marshalls and TJ Maxx, told analysts last week that they had “crushed the value competition.” Gap CEO Richard Dickson said Old Navy has made inroads among middle- and upper-income people. and families earning six figures. Fueled Walmart’s growthsaid CEO Douglas MacMillan.

Walmart and Target are both slashing prices on thousands of items (TGT). But Target had a tougher third quarter, with a business that’s focused more on kitchen staples and more on apparel and other discretionary items. Target’s transaction volume increased last quarter, but they Often the amount is smallerCustomers are responding to promotions more “significantly” than a year ago, executives said.

Target CEO Brian Cornell said recently: “When we look at shopping behavior, and certainly what we saw in the third quarter and what we expect going into the fourth quarter, we know that consumers Looking for value. “We think that’s going to continue.”

High-income households reduce large-ticket purchases

Chedley Lewis, vice president of corporate finance at Moody’s Ratings, said many consumers are looking for ways to save on necessities, but those with more money are more likely to take advantage of savings strategies.

“Low- and moderate-income consumers generally go to the grocery store more frequently but with smaller basket sizes,” Lewis said. “Mid- and high-income consumers are more willing to shop at Costco and Walmart and buy in bulk.”

Wealthy Americans remain relatively free to spend, said Oren Krachkin, financial markets economist at Nationwide Mutual Insurance Company. But he said they were reluctant to make large purchases because of high interest rates and uncertainty about how the next president’s policies and geopolitical conflicts might affect the economy.

This limits bulk sales to several retailers. Executive Vice President Rick Gomez said Target shoppers are ditching TVs in favor of smaller items like candles and vases. primary residence Renovation progress is slowing down, Data from Lowe’s and Home Depot show that transaction volume over $1,000 fell nearly 7% last quarter from a year earlier. While demand for furniture is relatively weak, La-Z-Boy (Leedsburg) and Williams-Sonoma (WSM) executives said on a recent earnings call.

Baumol said the holiday shopping season could be “the last hurray.”

“Consumers are quite optimistic about the economic outlook,” he said. But “by next year, we’re going to see a lot of that confidence fade as people are faced with the realities of their personal finances.”