Consumer confidence drops as inflation squeezes US shoppers
TWO-THIRDS of US consumers say they are planning to reduce spending over the next 6 months as a result of inflation, according to a recent survey of roughly 2,000 people conducted Jul 15 to 18 by Morgan Stanley. A similar percentage identify inflation as a top concern.
The number of people who said they intend to engage in leisure and entertainment has slowed from a rise of 7 per cent earlier this month to a modest hike of 2 per cent, while visits to shopping malls have dropped 14 per cent and travel intentions are starting to cool. However, households with incomes of more than US$150,000 “are resilient in their travel intentions thus far”, the researchers said.
Consumer spending soared in recent cycles as households accumulated savings and enjoyed lower debt levels. Now, high inflation and slow increases in jobless claims seem to be exhausting consumers.
“Wages are not keeping up with inflation... it’s becoming increasingly challenging for households to pay their bills. People are starting to change their behaviour in unusual ways in order to stretch their dollars a little long further,” Chris Low, chief economist at FHN Financial, said in a phone call.
Consumption of gasoline - a usually inelastic good - declined in real terms by nearly 8 per cent in July, according to FHN Financial’s calculations. “You can tell how squeezed families are by the fact that they are changing their driving habits so much,” Low said.
The data bolster recent earnings commentary from banks including Citigroup and Wells Fargo around increasing levels of consumer indebtedness.
Low raised the possibility of tighter lending terms for higher-risk borrowers as interest rates start to rise. “The first stage of a credit tightening is borrowers recoiling because interest rates are higher,” he said. “The second stage is lenders starting to cut people off. And we’re just at the beginning of that second stage.” BLOOMBERG
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