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Consumers oppose inflation to support the economy. for how long? | Lifestyle

CHRISTOPHER RUGABER and ANNED’INNOCENZIO-AP Business Writer

Washington (AP) — Americans think spending will be braked as prices across the economy, from food, gas and rent to cars, airfare and hotel rooms, are skyrocketing at the fastest pace in decades. maybe.

Not far. Consumers are showing amazing resilience as a whole, not only maintaining spending, but also increasing spending after inflation adjustments. In April the government said retail sales Inflation has surpassed inflation for four consecutive months.. It was a reassuring sign that consumers, the main driver of the US economy, still provide significant support and help ease concerns that a recession may be near.

But at the same time, inflation reduces disposable income, especially in low-income households, which some people have reduced by shifting to lower prices or alternatives or skipping some purchases altogether. There are signs that it is starting.

For example, last week, Wal-Mart, which caters to price-sensitive consumers, reported that it prefers cheaper over-the-counter brand lunch meat to more expensive national brands and buys half-gallon milk cartons instead of full-gallon. bottom. Similarly, Coles, a mid-priced department store, said that customers spend less on each visit.

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All of this highlights the questions that arise in the economy. Despite the pressure from inflation, how long will consumers stay at a healthy level, even if they clench their teeth? High price for nearly 40 years?? The answer will be key to whether the country can avoid a recession when the Federal Reserve is moving to significantly raise borrowing rates.

In most cases, consumers are shifting down from last year’s explosive spending, supported by brutal post-recession stimulus and other government support. This year, Michelle Meyer, chief US economist at the MasterCard Economics Institute, pointed out that the steady surge in prices has dim the economic outlook for Americans.

Still, Meyer said there are several reasons for optimism.

“There are still many reasons to believe in consumer resilience,” she said, pointing out the strong US job market and the steady increase in wages that many people are receiving. But they are still spending. “

Consider that consumer sentiment as measured at the University of Michigan has plummeted by nearly 30% over the past year, while American spending has outpaced inflation. Michigan economists pointed out that there was a “historical disconnect” between emotions and actual consumer behavior.

Some economists have warned that stable consumer spending is unlikely to persist in the face of the Fed’s aggressive credit crunch. And if consumer spending remains strong, the Fed may eventually have to raise interest rates further to cool the economy and slow inflation.Earlier this month, the Fed set out to calm inflation Raised the benchmark rate Half a percentage point suggested that there would be a further significant rate hike in the future.Some people are afraid of the economy Next year could be in recession..

Still, some trends are driving American spending, including rising wages, savings accumulated during the pandemic, and recovery in credit card usage. According to economists, these savings and continued wage increases could promote healthy spending throughout the year.

Consumers are shifting much of their spending from appliances, electronics, and exercise equipment, the types of goods that were scattered when many were squeezed into their homes early in the pandemic, to travel, entertainment, and other services. I am. The intensity of the change has surprised many retailers and contributed to some negative revenue reporting.

Brian Cornell, CEO of Target, said the chain goes from TVs, appliances, patio furniture to luggage, restaurant gift cards, and other items that reflect the growing desire of Americans to leave home. “I didn’t expect to see a dramatic change in spending,” he said. ..

Southwest Airlines says it can sustain profits throughout the year due to the surge in demand for air travel. Average fares in the first quarter rose 32% year-on-year, but airlines said there were no signs of a decline in demand.

For many, the opportunity to travel after a two-year limit outweighs the financial pressure of higher prices.

Mike and Masha Dislin, who live in San Jose, flew to Washington, DC last week to visit their daughter Sarah, a graduate student at Georgetown University.

“She’s been here for two years, but she hasn’t visited for COVID all the time. Your priorities change,” said Masha Dislin.

To save gas, Mike Dislin said they are driving their Toyota Prius more than their SUV, but otherwise they haven’t made a big change in their consumption habits.

However, soaring gas and food prices have begun to retreat other consumers. According to AAA, the national average cost of a gallon of gas jumped to $ 4.59, with more than 50% more pain than the previous year.

Wal-Mart states that shoppers visit gas stations frequently, but are rarely full each time.And Coles Last week, a drop in payment rates was reported A store card one year after the customer made a large payment. The higher the level of card debt, the greater the risk of increased delinquency.

Dan Gavel, a musician in Millbury, Massachusetts, has cut entertainment costs as costs soared far beyond his income. Big band leader and trombone player Gabel needs work not only for gas, but also for the cost of dry clearband uniforms, lubricants to keep the instrument, and paper and ink to print sheet music. We are facing soaring prices for many items.

To save money, 33-year-old Gabel and his partner opera singer dropped HBO and Netflix. Music gigs are going well, but Gabel is now taking the train, if possible, instead of driving when playing outside town.

“We feel crunches,” Gabel said. “All these little things are added together.”

But nationally, the overall resilience of consumer spending shows a tendency to perpetuate inflation. People hate higher prices, but if wages are also rising, they often keep paying them.

“Inflation does not cure itself,” said Laura Veldkamp, ​​a professor of finance at Columbia University. “If the price of a product and wages rise together, it does not necessarily reduce demand.”

Median wages in April rose 6% year-on-year across the economy, according to the Federal Reserve Bank of Atlanta. Although the inflation rate was below 8.3%, it was the largest increase since 1990.

However, a surprising number of workers are experiencing wage increases that exceed inflation. According to a survey by IndeedHiring Lab, about 45% received in March compared to the previous year.

Nick Bunker, Anne Elizabeth Conkel, and Indeed economists said the numbers were “notable” given the level of inflation.They said it shows how desperate it is for many employers to find and retain workers. Unemployment rate is only 3.6% We posted a job near a record high.

Many other consumers had to use their savings to continue spending. The national savings rate reached 16.6% in 2020 and then fell to about 6%, below pre-pandemic levels. This is the highest record dating back to 1948, at 12.7% in 2021.

And as more Americans turned to credit cards for spending, household debt in the first three months of the year increased by 8.2% year-on-year. This was the largest increase since early 2008, when the economy was in recession.

However, economists say overall debt has not yet reached problematic levels. Based on pre-pandemic trends, they estimate that they still save about $ 2 trillion beyond what households would have had.

Paul Ashworth, an economist at Capital Economics, states that household debt represents 86% of disposable income, significantly lower than the peak of 116% in 2008.

“Never bet on US consumers,” Ashworth said.

D’Innocenzio reported from New York. AP writer Steve LeBlanc contributed to this report from Boston.

Copyright 2022 AP communication. all rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.

Consumers oppose inflation to support the economy. for how long? | Lifestyle

Source link Consumers oppose inflation to support the economy. for how long? | Lifestyle

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