Cracks are showing in one of the main pillars holding the economy out of recession: resilient spending by American households.
Consumer goods giants from PepsiCo to Kraft Heinz recently described how the combination of high inflation and higher interest rates is hurting their low-income customers.
It’s a culmination of everything getting more expensive amid high inflation, even if it’s not as bad as it used to be, and resistance to higher interest rates due to more expensive credit cards and other payments.
Remarkably resilient spending by American consumers overall has been one of the main reasons the economy has avoided recession, at least so far. Capitulation at the lower end of the spectrum could be the first crack in the economy.
“Low-income consumers in the U.S. are on edge,” PepsiCo CEO Ramon Laguarta said late last month as it reported better-than-expected earnings and are “adopting many strategies to make sure their budgets reach the end of the month.” And it is the consumer who chooses what and where to buy, and makes a lot of choices.”
At Tyson Foods on a conference call to discuss its better-than-expected results for the latest quarter, one of the first questions asked by a Wall Street analyst was for company executives to describe how they see the state of the U.S. consumer market. . .
“As you know, consumers are under pressure, especially low-income households,” said Development Director Melanie Boulden.
She said the beef, pork, chicken and prepared foods producer has seen customers shifting from fine dining to quick-service restaurants. There is also a trend of customers shifting from inexpensive restaurants towards eating at home.
Kraft Heinz CEO Carlos Arturo Abrams-Rivera also said low-income customers are shifting away from restaurants and convenience stores. This is despite the fact that people with higher incomes buy more Kraft Heinz products because they spend more on travel and entertainment.
Mondelez International Chief Financial Officer Luca Zaramella recently told analysts that U.S. sales of some products particularly popular among low-income households are declining, such as Chips Ahoy cookies.
Most of the comments recently have come from large food and beverage companies, but several retailers will join them in the coming weeks. Walmart, Dollar General and others will provide more evidence of how well or poorly low-income Americans are faring.
Of course, it’s not just the lowest-income households who are concerned about high prices for seemingly everything.
“We’re in an environment where there’s consumer price discrimination, and again, it’s not just something that’s related to low income,” McDonald’s CEO Chris Kempczinski said after reporting his company’s latest quarterly results. “I think all consumers are looking for good value and good availability, and that’s why we’re focused on that.”