TITLE: Americans Are Still Spending Like There’s No Tomorrow (WSJ)
EXCERPT: Consumers should be spending less by now.
Interest rates are up. Inflation remains high. Pandemic savings have shrunk. And the labor market is cooling.
Yet household spending, the primary driver of the nation’s economic growth, remains robust. Americans spent 5.8% more in August than a year earlier, well outstripping less than 4% inflation. And the experience economy boomed this summer, with
Delta Air Lines reporting record revenue in the second quarter and Ticketmaster selling over 295 million event tickets in the first six months of 2023, up nearly 18% year-over-year.
Economists and financial advisers say consumers putting short-term needs and goals above long-term ones is normal. Still, this moment is different, they say.
A tough housing market has more consumers writing off something they’d historically save for, while the pandemic showed the instability of any long-term plans related to health, work or day-to-day life. So, they are spending on once-in-a-lifetime experiences because they worry they may not be able to do them later.
“It’s not a regret-filled, spur-of-the-moment decision,” says Michael Liersch, who oversees a team of advisers as head of advice at Wells Fargo. “It’s the opposite of that, where I would regret not having done it.”
Liersch cautions that it’s too soon to say whether the spate of spending is a fleeting moment or a new normal. And consumers remain frustrated about inflation as the price of many goods remains significantly higher than a few years ago.
Ally Bank, whose online platform started allowing customers to create savings buckets for different goals in 2020, says users create about one-and-a-half times more experience-oriented buckets such as travel and “fun funds” versus those associated with longer-term planning.
Lindsey and Darrell Bradshaw went into credit-card debt to finance a vacation to Maui this past spring. The couple booked the trip only a few weeks after Lindsey, 37, quit her job to be a full-time caregiver to their 8-year-old son, who has special needs.
“We did not have the money and we were like, ‘Let’s just do this anyway,’ ” says Darrell Bradshaw, a 39-year-old general contractor in Seattle.
TITLE: Consumer Strength Challenged as Spending Drops (PYMNTS.com)
EXCERPT: A report Saturday (Sept. 30) by Bloomberg News catalogs the various ills: High gas prices cutting into spending. Delinquent credit cards at their highest rate in more than 10 years. And consumer confidence dipped to a four-month low thanks to inflation and a glum economic outlook among consumers.
“There is some real concern about weakness in the consumer,” Sarah Hunt, a partner at Alpine Saxon Woods, told Bloomberg. Higher gas prices especially indicate “there’s a real spending issue coming up and I think that’s going to impact earnings.”
According to the report, consumers have been “fairly resilient” thanks to a strong labor market, although younger people and lower-income families are showing weaknesses, with the 60-day-plus delinquency rate for subprime auto loans hitting an all-time high in July.
“It’s not a crisis at this point, but clearly the delinquency rates are rising and they’re doing so at a time where unemployment remains relatively low,” said Cristian DeRitis, deputy chief economist at Moody’s Analytics. A modest increase in unemployment numbers is “going to just put more pressure” on those rates, DeRitis added.
Recent PYMNTS research shows some warning signs on the horizon when it comes to consumer spending.
For example, while the American consumer may be “resilient,” just as durable is the percentage of consumers who live paycheck to paycheck.
“Consistently, an average of 60% of individuals in the United States see their monthly obligations eat up the monthly take-home pay,” PYMNTS wrote last week. “Per the latest data, the percentage has inched up to 62%. And in terms of absolute numbers, nearly 10 million more consumers joined the paycheck-to-paycheck rosters by the end of 2022 than had been counted when the series began in March 2020.”
Incomes, meanwhile, have been less of a buffer than one might suspect. The newest report by PYMNTS Intelligence shows that by August, close to 45% of consumers earning more than $100,000 per year lived paycheck to paycheck, compared to roughly 36% just over a year ago. The number of paycheck-to-paycheck consumers have been growing across all income levels.
TITLE: Why your $7 latte is $7 (Vox)
EXCERPT: Labor is often the most expensive cost coffee businesses have, and labor has gotten costlier over the past few years. Workers are demanding and making more money, and lower-wage workers — like baristas — have seen especially significant wage gains. That’s a good thing! It also means higher costs for companies, and — you guessed it — for you.
Starbucks has pointed to inflation and higher labor costs as the reason for its increased prices. (It’s also been able to make more money off of those higher prices.)
“There’s been a big push for them to have a better dynamic with their employees. So, they started a reinvention plan to kind of put an end to the unionization of employees, but it comes at a cost. So they’ve raised prices in that regard to raise wages,” said Siye Desta, an equity analyst at CFRA Research, a financial intelligence firm, referring to efforts among Starbucks employees to unionize stores. Starbucks’ reinvention plan also entails revamping some of its stores, it says, to improve the day-to-day of its workers and make things speedier and more efficient, which requires investment.
Starbucks has expanded digital tipping, which isn’t rolled up into the price of its drinks but obviously shows up for consumers at the point of sale. It has helped the company keep employees. “[It] might rub customers the wrong way, but it’s definitely helped with wages, and their barista attrition has improved quite a bit since they’ve made those changes,” Desta said.