Consumer spending accounts for roughly 70% of the economy. A downshifting consumer is a critical reason that business and academic economists polled by The Wall Street Journal, on average, put the probability of a recession in the next 12 months at 61%. The share of monthly income Americans set aside for savings was 3.4% in December, down from 7.5%, while credit card interest rates climbed higher. Those factors are finally catching up to consumers.
The only thing saving the consumer market is that jobs are still plentiful, even with the tech layoffs. But retailers are already noticing a measurable shift in spending, and once-popular brands see a significant slowdown.
“I keep in touch with several brokers and salespeople who work with major retailers on everything from food to hard goods. They’re all wondering when the decline in demand for some branded products will”bottom out. ”
Consumer spending was energized after the pandemic with money from stimulus spending, and rather than save the money, they went on a shopping spree and bought a lot of stuff. Used car prices skyrocketed, and many branded products wanted a share of their money. Now that’s coming to an end. More private-label products are taking share from brands, and used car sales are tanking.
“Households had a ton of comfort they don’t normally have about their job prospects,” said Marianne Wanamaker, an economist at the University of Tennessee. “They knew they could get a job tomorrow if they wanted to, and that remains mostly true.”
Credit-card balances were up 15% on the year in the third quarter, according to the Federal Reserve Bank of New York, the most significant increase in more than two decades.
Additionally, tens of millions of Americans are set to start or resume making payments on student loans later this year after the Supreme Court rules on President Biden’s student-debt cancellation plan. Payments have been frozen since March 2020 and are scheduled to begin again 60 days after litigation is resolved or the program is implemented.
Many taxpayers will get smaller refunds when they file their returns in the coming months because Congress didn’t extend the breaks put in place at the height of the pandemic.
U.S. factories, shippers, and importers are pulling back, a sign they anticipate less demand from Americans in the months ahead.
Inbound volumes at the ports of Los Angeles and Long Beach in California were down 20.1% in December from a year earlier and have been behind 2019 levels since August. A little over a year ago, backlogs at ports were drawing President Biden’s attention.
Nicholas Hobbs, chief operating officer of J.B. Hunt Transport Services Inc., which manages truck and rail shipments, said the company has seen demand fall off for big and bulky products, including appliances, furniture, and exercise equipment—although off-price retailers with discounted inventory are shipping more.
“How brands respond could determine their future. As one buyer told me,” some brands raised prices two or three times and lost market share. Now they want to get it back; that’s not going to happen”.”How brands respond could determine their future. As one buyer told me, “some brands raised prices two or three times and lost market share. Now they want to get it back; that’s not going to happen”.