Connect with us

General

This will be an incredibly expensive Christmas. Shoppers don’t care


That means 2021 will be among the most expensive holiday shopping seasons ever. But shoppers aren’t holding back just yet. Companies are confident you’ll keep paying higher prices, especially during the holidays.
They’d better be right: If consumers get sticker shock and decide to pull back spending, the US economy could be in big trouble.
Despite a global supply chain crisis, a resurgence of Covid cases and high inflation, America’s economy remains in pretty decent shape. Consumers aren’t spending as much as they did in the spring, when they still had gobs of money to blow from their stimulus checks, but they continue to open up their wallets — albeit for some smaller purchases.

Consumer spending rose a healthy 0.6% in September after growing 1% in August, the Bureau of Economic Analysis reported Friday. But the report came with some red flags: Large, durable goods purchases (think cars and appliances) were down 0.2%, while spending on other, nondurable items surged 0.9% — mostly because food and gas prices are on the rise.

Albertsons and other chains expect they can get consumers to pay higher prices without much resistance.

That suggests consumers are willing to keep spending, even while prices increase. But they could be holding back on some bigger-ticket items.

The good news is the Delta variant seems to be on the downslide, at least for now. Consumers could start venturing out again toward the end of the year if the trend continues. And automakers are reporting some easing of the supply chain crisis that has seriously crunched inventory — which could help car prices come down a bit and lead to some robust end-of-year purchases, perhaps some luxury cars with bows on their tops for holiday gifts.

If we’re in for a December to remember, though, consumers are going to have to keep dealing with higher prices.

A merry Christmas for stores

Economists and retail chains are confident that consumers will keep spending during the holidays. With higher wages and a lot of jobs waiting to be filled, Americans have money to spend this Christmas — even if prices are higher.

“As the Delta wave recedes, consumer spending is turning higher, with the latest data showing increased hotel occupancy and restaurant visits,” said BMO senior economist Sal Guatieri.

People are returning to work, and pay keeps rising along with inflation. They’ve built up savings over the pandemic, too, which will give shoppers and stores a tailwind going into the holidays, according to Guatieri.

“Holiday sales look to be very strong this year…if stores can find enough workers to deliver them,” he said.

Christmas is going to be great for stores, if their names are Walmart or Target

Retail sales in November and December are expected grow between 8.5% and 10.5% this year compared with the 2020 holiday season, to a record of up to $859 billion, the National Retail Federation, a trade group for retailers, said Wednesday. The figure excludes car dealers, gas stations and restaurants.

“Everything we hear from the consumer that we talk to on a regular basis is they’re excited about the holiday season,” Target CEO Brian Cornell said in an interview with Yahoo Finance Monday. “We certainly expect to see a very strong and robust holiday season.”
However, supply chain challenges remain a huge factor that could derail the holiday season. Even Amazon and Apple are grappling with the global supply chain crunch.

Both companies reported revenue results on Thursday that fell short of Wall Street analysts’ expectations and warned that supply chain issues could weigh on business in the December quarter.

Shipping delays means those supply and demand scales will continue to be in imbalance. As your Econ 101 professor told you, that means prices will keep rising, right through the end of the year.

Higher prices ‘well received by customers’

Yet companies are also confident that, with supply tight and demand red hot, they have pricing power over customers and can pass along the soaring costs they’re facing to customers.

“Consumers are paying higher prices because there are limited opportunities to purchase other goods,” said Gus Faucher, chief economist at PNC. “If your dishwasher breaks and you need a new one, and dishwashers are in short supply, you’re willing to pay a premium. Same with household products like cleaners, toothpaste, or toys. That’s allowing businesses to raise prices.”

Procter & Gamble (PG), Whirlpool (WHR), Coca-Cola (KO), McDonald’s (MCD) and Albertsons have said in recent days that customers aren’t changing their buying habits, even as prices increase. They believe consumers are in good financial shape and can afford to pay higher prices without too much resistance.

“We have not seen a material change in customer behavior. And I think it speaks to the strength of the customer,” Albertsons CEO Vivek Sankaran said on an earnings call earlier this month. “We don’t see their intent changing dramatically over the next several weeks and months.”

These toiletry items may soon be more expensive
McDonald’s raised menu prices 6% recently, and the chain’s chief financial officer Kevin Ozan said on an earnings call Wednesday that the increase “has been pretty well received by customers.”
But there are dangers to companies and the broader economy if prices rise too much, as some customers may punish them by trading down to lower-cost products or reducing their spending. Brands can also suffer if they make err on pricing. In 2019, when Clorox (CLX) raised prices on Glad trash bags, retailers revolted and reduced space for Glad on the shelves, squeezing sales.

“If inflation persists at a high level and that is stronger than wage growth, that would cause consumers to be more cautious with their spending,” said PNC’s Faucher. “They have to eat out less and go to the movies less. Instead of buying steak, they’re going to buy ground beef.”

Copyright © 2020 AMSNBC News