Where will Americans spend their next dollar? CEOs are worried

At what point do consumers say that is enough when they pay more for goods and services?

This question is on the minds of C-suite executives, regardless of industry, as inflation rises to levels not seen for decades. As the revenue season begins, there are also concerns about rising costs and balancing consumers.

“Businesses are going to make very little money or they’re going to raise their prices,” RH CEO Gary Friedman said in the company’s revenue call on March 30. Go everywhere. “I think it’s more than consumers, and we’re going to be in some tricky place.”

Consumer prices rose 8.5% in March, according to Labor data. The data reflect the rise not seen by the United States in the late 1970s and early 1980s, when headline inflation was highest after August 1982. The Manufacturers ‘Price Index, which measures wholesalers’ payments, recorded its largest year-on-year increase. Increased by 11.3% in March.

So far in 2022, rising prices have not significantly reduced consumers. According to the Department of Commerce, year-over-year retail spending rose 17.6% until February, and January spending revised up 4.9% from an initial estimate of 3.8%.

Continuing strong demand offers many companies the opportunity to compensate by sending customers increased prices for goods and supply chain costs.

Nike raised its overall margin expectations by at least 150 basis points over the previous year because of the “benefits of strategic pricing”, said CFO Matt Friend in the company’s most recent revenue call on March 21.

Conagra reported that its organic sales were up 6% in its most recent quarter, while volume was down 2.6%. The reason for that? Price / composition increased by 8.6%. CFO Dave Marberger told analysts during the company’s April 7 revenue call that “volume reductions are primarily due to the impact of the flexibility of price increases.”

The hot job market, low unemployment and historically high savings rates have kept Americans excited and willing to pay higher prices for goods and services. But despite rising wages, they have not kept pace with inflation. According to the Bureau of Labor Statistics, real-time hourly earnings fell 5.6% year-on-year, compared to a seasonal adjusted 0.8% last year.

Starting with the key earnings read from the used car market on Monday, there are signs that consumer strength is further weakening.

Carmax saw its used car unit comps fall 6.5% in its most recent quarter, while its used car revenue rose 32.6% as average selling prices rose. The company cited a number of macro factors, including “declining consumer confidence, Omigron-fuel boom in Govt cases, vehicle incentives and incentives paid in the previous year.”

Forty-eight percent of Americans say they always think about price increases, according to a CNBC poll released last week. Moreover, they have expressed concern that 75% higher prices will push them to reconsider their financial choices in the coming months.

To combat high prices, there are many things that Americans say they do. Fifty-three percent said they have reduced their meals in the last six months, while 35% said they have canceled their monthly subscription and 29% feel compelled to cancel a trip or vacation.

On top of that, 32% said they had already switched from brand-name production to the generic version.

Historically, high-income earners have been a safe haven for companies as they continue to spend even in difficult times. But even 68% of respondents with $ 100,000 income said they were concerned about the high price.

Brian Nicole, CEO of Mexican Grill at Chipot, told CNBC’s “Closing Bell” on Friday that while the company “will continue to see the strength of consumers,” he thinks “they are going to be even more discriminating as they move forward.” Decide how they will spend their dollars. “

“Our data shows that people are thinking twice about how far they want to drive and how often they want to drive; they are also thinking twice about whether they want to spend their dollars on a restaurant experience or a recreational experience.” Said Nicole. “I think it’s becoming more and more a conscious decision about how they’re going to spend the next dollar a few months ago.”

Chipotle, which has previously said it has raised prices by about 6% so far this year, has paid 10% more on their orders than it did a year ago, so “we have the power to set the price when we need it,” Nicole said. However, he noted that he “does not want to continue to take the price, but to see how everything turns out.”

CNBC research shows that the S&P 500 companies will show revenue growth of 6.4% in the first quarter of 2022 and 6.8% in the second quarter, eventually leading to growth of about 10% in the second half of the year. But it is mostly driven by the energy sector, which has revenue growth of 233.5% in the first quarter.

In comparison, the consumer staples and consumer preferences sectors are projected to have revenue growth of 1.9% and -11.9% in the first quarter, which could finally hit a wall in the Govt era consumer spending and demand.

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