Americans are burning through the excess savings they accumulated during the early stages of the COVID-19 pandemic, leading to concerns about the future of consumer spending once the one-time boost to the economy ends. In the recent fourth-quarter earnings season, some consumer-facing companies have reported an increase in consumer spending, driven by rising wages, low unemployment, and the desire for experiences that were missed during the pandemic. This has been seen in the demand for premium vodkas, personalized Starbucks orders, and Disney theme park tickets. However, others have reported a new caution among shoppers, particularly those with lower incomes, who are cutting back on purchases of goods such as cat litter and mattresses as inflation keeps prices high and they spend the money they had saved during the pandemic. Estimates show that US households spent roughly 30% of their $2.7 trillion in pandemic “excess savings” in 2022. This cushion has already disappeared for many lower-income consumers. The split in consumer spending is leading to mixed messages from executives and companies are becoming increasingly wary of predicting the outlook for the coming months.
The CEO of mattress maker Tempur Sealy International, Scott Thompson, has stated that the high-end consumer continues to hold on despite the current economic situation, but the low-end consumer has seen significant deterioration. Church & Dwight, a pet products company, has reported that pet owners are trading down from premium to "value" litter. The University of Michigan confirmed in a survey that consumers are still feeling the effects of high prices and inflation, keeping sentiment 22% below the index's historical average. Edgewell, the maker of razors and sun cream, has not seen any trading down but expects that pricing in its markets may become more promotional in the future. The current economic situation has led to a weak corporate reporting season, with earnings coming in just 1.6% above expectations, which is the weakest since the crisis-hit fourth quarter of 2008.
