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Where will Americans spend their next dollar? CEOs are getting worried


When is it enough for consumers to pay more for goods/services?

This question has been on the minds of all C-suite leaders, regardless of their industry. Inflation is at an unprecedented high. As earnings season starts, there are concerns over balancing rising consumer and cost costs.

Either they will make much less money, or their prices will go up,” RHGary Friedman, CEO of the company spoke on its March 30 earnings call. I don’t believe anyone really knows how high the prices will go all over. … I think it’s going to outrun the consumer, and I think we’re going to be in some tricky space.”

Prices for consumers rose 8.5% from a year ago in MarchYou can find out more at Labor Department data. These data reflect a rising that the U.S. hasn’t experienced since the early 1970s or the 1980s. The core inflation was the highest since 1982. Producers Price Index is a measure of wholesalers paying. posted its biggest riseRecorded increase of 11.3% year-over year in March

In 2022 so far, consumers have not been affected by rising prices. Commerce Department reported that retail spending rose 17.6% over the past year through February. However, January spending fell by 17.6%. revised up to an increase of 4.9%, well ahead of the initial 3.8% estimate.

This strong demand offers many businesses the opportunity to pass on increased material and supply chain cost costs to their customers to compensate for them having seen an increase in pricing.

NikeThe “benefits” of strategic pricing have helped the gross margin expectations increase by 150 basis points, CFO Matt Friend stated on the company’s March 21 earnings call.

ConagraIt reported that organic sales increased by 6% during its last quarter, despite a decline in volume of 2.6% percent. Why? The price/mix ratio was 8.6% higher. On the April 7, earnings conference with analysts, Dave Marberger, CFO of Marberger stated that volume decreased was due “mainly to the elastic impacts of price increases”.

Americans are more likely to be willing to pay higher for goods and services because of the hot job market, low unemployment, and historically high savings rates. Wages have increased but have not kept up to inflation. According to Bureau of Labor Statistics data, real earnings increased 5.6% compared with a year earlier. However, the average hourly wage saw a seasonal adjusted 0.8% decrease last month.

Signs of consumer weakness are starting to show, beginning with Monday’s key earnings report from the used vehicle market.

CarMaxThe company saw used car unit comps fall 6.5% during its last quarter, despite its use car revenue increasing 32.6% because of its average selling prices. Company cites a range of macro factors that contributed to sales drops, including: “declining customer confidence”, Omicron-fueled rise in COVID case numbers, vehicle affordability, lapping stimulus benefits, and decreased consumer confidence.”

According to the aforementioned survey, 48 percent of Americans believe that rising prices are a constant concern. CNBC survey released last week. A further 75% stated that they were concerned about rising prices and will have to change their financial plans in the future.

There are several ways to combat rising prices several things that Americans say they are doing. 50-3% of respondents said they cut back on dining out during the last six month, 35% said they cancelled a monthly subscription, and 29% said they had to cancel a vacation or trip.

A further 32% stated that they have switched to generic products from brand-name brands.

High earners were historically a safety haven for businesses when it came to spending, even in difficult times. Even though 68% reported that they aren’t satisfied with their incomes above $100,000, worried about higher prices making them change financial decisions.

Chipotle Mexican GrillCNBC’s Closing Bell featured Brian Niccol as CEO. He stated on Friday, that the company sees strength in consumer but that they think consumers will be “more discriminate” about how they spend their dollars going forward.

Niccol stated that data shows people think twice about driving distances and how frequently they drive. They also consider whether they would like to spend their dollars on entertainment or a dining experience. Niccol said, “I think they are making a conscious choice about how to spend their next dollars.”

Niccol stated that Chipotle previously claimed it had raised its prices by approximately 6% this year. This means customers are paying 10% more than they were a year ago. However, he said Chipotle has the “pricing power” to set pricing as needed. He also said that while he would love to not have to continue taking prices, we will have to wait and see what happens in the future.”

CNBC research suggests that S&P 500 companies are expected to show earnings growth of 6.4% in the first quarter of 2022 and 6.8% in the second quarter, ultimately leading to about 10% growth across the second half of the year. However, this is driven primarily by the energy industry which will see earnings growth of 233.5% for the first quarter.

The first quarter earnings growth for the consumer discretionary and staple sectors was 1.9% and 11.9%, respectively. It is possible that this could be a warning sign that consumers spending might slow down and may have hit a wall.