Despite Some Increases in Spending, Consumer Confidence is Down

As the world attempts to return to something that resembles “normal,” the biggest corporations in the world are raising prices to make up for losses during the pandemic. Whether these price spikes are caused by inflation or some other factor (and likely it is a combination of things), consumers usually bear the expense with higher prices.  It seems, however, that consumers are getting savvy to this and are becoming more resistant to price increases, especially when it comes to luxury and leisure products.

For example, Marlboro Cigarettes maker Altria Inc recently commented that cigarette smokers are shifting to discount brands, possibly as a result of ridiculously high fuel prices that have greatly reduced the average disposable income.  In addition, both Sleep Number Corporation and Tempur Sealy International Inc have cautioned a great decline in demand as consumers less on big-ticket items like mattresses. Even Inc has seen a decline in orders as consumers are spending less on flowers.

This may be somewhat of a shock to corporate America since consumer spending was a driving force for the US economy, during the pandemic.  However, a lot of that spending came from COVID-related stimulus programs that put liquidity into the pockets of every American.  Rising wages in some industries and the more recent rebound efforts in the US also helped push unemployment down and help many consumers find a little more room for discretionary spending.

All of this is important, of course, because consumer spending makes up a majority of US economic output.  As such, economists are now closely monitoring how Americans choose to deal with rising inflation.  Even as the US’s gross domestic product shrank in the first quarter of 2022—on a widening trade deficit and lower inventory investments—economists expect consumer spending will continue to improve in the coming months.

Indeed, the most recent government data suggest that while the average consumers may be opting for fewer casual purchases to accommodate higher energy prices, most people are still willing to splurge a little bit.  Even as durable good sales (like automobiles and appliances) are down on a seasonally-adjusted basis, consumers are spending more on travel and accommodation purchases.