Some of America’s largest companies are flashing warning signs
- Consumer wallets are in for a world of pain in the second half of 2022.
- So say some of America’s top business leaders.
- This points to significant headwinds for the US economy as costs continue to rise and consumers feel squeezed.
At Walmart, grocery shoppers are cutting back on their spending. AT&T customers are paying their bills later than usual. Best Buy has seen a dramatic slowdown in demand for electronics.
With unemployment remaining at historic lows and consumer spending continuing to grow, albeit at a slower pace, there are worrying signs for the US economy in the second quarter earnings commentary.
In many cases, big business paints a bleak picture of the future of the economy.
Walmart sounded the alarm on Monday that its consumers could no longer afford anything but basic groceries. “Rising levels of food and fuel inflation are affecting how customers spend,” Walmart CEO Doug McMillon said in a statement.
On Tuesday, Unilever, the parent company of Dove soap and Ben & Jerry’s, added to the picture. CEO Alan Jope said on a call with analysts that “peak cost inflation” for the company won’t come until later this year, signaling that consumers will continue to face high prices.
“The threat of recession is starting to impact consumer confidence and shift consumption patterns and behaviors,” Jope said.
Then, on Wednesday, Best Buy stepped in, signaling a slowdown in customer interest in electronics.
“As high inflation has continued and consumer confidence has deteriorated, customer demand within the consumer electronics industry has further weakened, leading to second quarter financial results below expectations we shared in May,” CEO Corie Barry said in the statement.
Even companies like McDonald’s and Costco — two places consumers can usually count on for low prices — have started raising prices. Recently, a large number of McDonald’s franchisees have turned down $1 drinks. The fact that Costco has raised the prices of chicken pastries and sodas is a sign that it is not immune to inflation either.
Meanwhile, some consumers are starting to struggle to pay their phone bills — AT&T said it’s seeing an increase in subsequent customer payments.
It’s not just retailers who are sounding the alarm. Social media companies and tech giants have also been hit by anticipation that consumer spending could stagnate in the coming months. When companies cut costs in anticipation of slower growth, ad spend — a major source of revenue for companies like Snap and Meta — is often reduced.
Last week, Snap warned investors that it expects slower growth in the coming months for this exact reason.
“The combination of macro headwinds, platform policy shifts and increased competition has limited campaign budget growth,” Snap said in a letter to investors.
Similarly, Meta, Facebook’s parent company, pointed to rising inflation and a possible recession on the horizon as challenges for its business.
Headline inflation hit an 8.6% year-on-year pace in July, the fastest rate since 1981. And experts say that while inflation may show signs of having peaked, it is likely that price increases are here to stay for the next few months.
And there’s mounting evidence that pandemic savings are starting to run out for many. Credit card balances have increased by $71 billion over the past year, and in April the personal savings rate fell to its lowest level since 2008.
Good news: As global supply chains finally catch up with the outsized consumer demand seen earlier this year, some big box stores like Target are overflowing with certain products like loungewear, homewares and electronics. Consumers may find more bargains as stores try to unload their bloated inventory, and they may see name brands battling with cheaper store brands for their money.
But there’s a reason these items are discounted. Consumers do not want it, having shifted their demand from goods to services. And with inflation impacting everything from food to gas to housing, a discount here or there is unlikely to make Americans feel better about the economy. .