In 1967, it was the Summer of Love. In 2020, it was the summer of COVID-19. When summer 2024 goes in the books — from an economic perspective anyway — it just might be remembered as the summer of the U.S. consumer.
As the banking and payments industry came out of Memorial Day weekend, two reports put a more optimistic spin on summer than recent inflation data would suggest.
As Federal Reserve Vice Chair Phillip Jefferson said May 20 at the Mortgage Bankers Association’s Secondary and Capital Markets Conference, the U.S. economy is maintaining a steady growth rate.
When adjusted for inflation, the GDP saw an increase at an annual rate of 1.6% in the first quarter of 2024, a slowdown from the 3.4% growth in the last quarter of the previous year. However, private domestic final purchases, which exclude government expenditures and net exports and typically provide a more accurate reflection of underlying demand, experienced a growth of 3.1% in the first quarter, mirroring the growth seen in the latter half of 2023.
“Indeed, consumer spending has been robust over the past several quarters,” Jefferson said. He also addressed the all-important inflation issue, which affects interest rates, an index that will affect summer spending.
“While there has been a recent uptick in Americans’ inflation expectations over the next 12 months, long-term inflation expectations, over the next 10 years, remain close to pre-pandemic levels,” he said. “That shows the American people believe that we will make good on our commitment to bring inflation fully back to our objective. I am acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those on fixed incomes and those least able to meet the higher costs of essentials, including housing, transportation and food.”
A similar brand of cautious optimism was expressed at Bank of America. In a report citing data it termed “noisy” because of the early Easter holiday and higher insurance costs to consumers, the bank found a slight uptick in spending for April and said momentum for consumer spend to be “relatively soft but stable.”
It also found that the paycheck-to-paycheck economy (lower-income by BofA’s term) did not show any evidence of a spending slowdown, despite inflationary pressures. In fact, BofA has found that lower income spend outpaced higher income groups in April.
Price Cuts in the Offing
When it comes to inflation, competitive pressures at retail may be stronger than inflation’s pressure on the paycheck. As PYMNTS reported last week, Target has said it would cut prices on thousands of products as Walmart announced its own cuts. In fact, as Walmart CEO Doug McMillon noted on the company’s Q1 earnings call, its record growth in revenue was not due to higher prices.
“We have almost 7,000 (price) rollbacks,” he told the company’s Q1 earnings call. “That’s really helping. In our food categories, we see an even larger spread between eating at home, preparing meals at home, and eating out, which we think can help Walmart over the remainder of the year.”
The price cuts come as roughly 60% U.S. consumers, per PYMNTS Intelligence data, live paycheck to paycheck. Roughly half of high-income earners — with $100,000 or more in annual earnings — live paycheck to paycheck too.
In the meantime, though prices may be scaled back as inflation cools a bit (albeit with a continued rise), retail spending was already flat in April. As PYMNTS has estimated, the cumulative effect of inflation since the pandemic has been onerous in many of the most essential categories. Consider that, as the data shows, housing is almost 24% more expensive than it was just before COVID-19 hit. Groceries are even more expensive, with a cumulative gain of nearly 27%.
Consumers were already holding back or switching to other merchants headed into 2024, chasing affordability where they’ve been able to.
In the Consumer Inflation Sentiment report, PYMNTS Intelligence uncovered that millennials were the most likely to have made at least one change to their grocery shopping behavior in the face of rising prices: to reduce the quality of products they had purchased, to make fewer nonessential purchases or to buy from less expensive merchants. However, a significant percentage of Generation X emerged as most likely to have made all three such changes.
And Yet…
The pressure from consumers for lower prices are likely to get more pronounced headed into the summer months. Recent surveys PYMNTS conducted in the last few weeks show that 48% of consumers have already made travel plans for the summer. Another 18% remain undecided about traveling; 58% of Generation Z plans to travel, compared to 39% of baby boomers and seniors.
Income plays an even larger role in whether consumers have travel plans. Two-thirds of respondents annually earning more than $100,000 say they will travel this summer.
Among respondents with summer travel plans, 37% said they will travel more than they did last year. Most consumers traveling this summer plan to spend more than they did last year and prefer to use credit cards.
