Consumer resilience has helped keep the economy strong through the Federal Reserve’s interest rate hiking cycle. But is that strength holding, or is it faltering?
It depends where you look.
From Beyoncé’s “Renaissance” tour and the “Barbenheimer” craze to Taylor Swift’s “Eras” shows, US consumers have flexed their spending power even as the economy cools.
Consumers have more cash on hand now than before the pandemic, according to a July analysis from the JPMorgan Chase Institute. But with inflation still well above the Fed’s 2% target, a dollar doesn’t go as far as it used to in 2019.
Plus, consumer spending, which makes up about two-thirds of US economic output, grew by just 1.6% in the second quarter, down sharply from 4.2% in the first three months of the year.
So, what do corporate earnings reveal about the health of the consumer? Here’s a round-up of what chief executives have to say.
Airlines: Consumers are continuing to funnel cash into travel, favoring international trips.
Travel from the United States has more than doubled to destinations across the Pacific, airlines reported. The demand for transatlantic flights has also risen.
“The consumer is in good financial shape, particularly the premium consumer base that we target,” Ed Bastian, chief executive of Delta Air Lines (DAL), said last month.
That suggests a continuation of the trend of consumers spending on experiences over goods after being cooped up indoors during the height of the pandemic.
“The demand environment, especially for leisure travel, continues to be resilient as we have seen solid bookings throughout the busy summer travel season,” said Robert Jordan, chief executive of Southwest Airlines (LUV), during the company’s recent earnings call.
Dining: Earnings from restaurants paint a mixed picture.
Starbucks (SBUX) missed quarterly revenue expectations, even as it reported that more customers are paying up to personalize their beverages and add breakfast sandwiches to their drink orders. Starbucks (SBUX) Rewards members are also buying more, purchasing more frequently and getting larger sizes, the company said.
“We’re not seeing the down-trading in our customer base,” said Starbucks CEO Laxman Narasimhan during the company’s August 1 conference call.
While Chipotle (CMG) reported a sales miss in its latest quarter, the company said that demand remains strong.
“Both the lower-income consumer and our higher-income consumers are showing really good strength,” said Brian Niccol, chief executive of Chipotle, during the company’s post-earnings call.
Still, that doesn’t mean diners don’t have a limit when it comes to how much they’re willing to spend.
Sales at Papa Johns’ North American locations open at least a year fell 1% in the quarter ending on June 25 from a year earlier, weighed down by high prices at the pizza chain’s franchises.
Apparel and beauty: Levi Strauss (LEVI) cut its full-year profit outlook to a range of $1.10 to $1.20 per share from $1.30 to $1.40. The apparel maker also said that it now expects revenue to grow between 1.5% to 2.5%, a slowdown from its previous estimated range of 1.5% to 3%.
The company said in its post-earnings conference call that while it’s seeing strong demand from customers with incomes above $100,000, not everyone is continuing to spend freely.
“The macro effects of higher inflation and a slowing US economy have put increased pressure on the price-sensitive consumer,” said Chip Bergh, chief executive of Levi Strauss.
Still, consumers trading down to cheaper products has helped other companies boost their top lines.
Drugstore cosmetic brand e.l.f Cosmetics said that revenue soared 76% from the prior year in its first-quarter earnings results on August 1 and raised its net sales outlook for the year.
“We’re keeping an eye on the consumer environment and the overall macroeconomic environment [but] we feel we’re very well positioned,” said chief executive Tarang Amin, noting that the company doesn’t plan to raise US prices.