Discriminating Consumers

Consumers, particularly among lower-income households, are being careful with their spend

Summary: Consumers are being careful with their spend. It's become a challenging environment across the income spectrum. Labor markets have softened too, but there are also some positive signs. Mondelez said they're seeing volume growth start to rebound and consumers are spending on experiences that they find good value like concerts and cruises. The Fed looks set to lower interest rates in September.

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Macro

Consumers are discriminating with their purchases

"Beginning last year, we warned of a more discriminating consumer, particularly among lower-income households. And as this year progressed, those pressures have deepened and broadened. The QSR sector has meaningfully slowed in the majority of our markets and industry traffic has declined in major markets like the U.S., Australia, Canada, and Germany." - McDonald's (MCD 0.00%↑) CEO Christopher J. Kempczinski

"We're seeing lower average selling prices or ASPs right now because customers continue to trade down on price when they can... Consumers being careful with their spend, trading down, looking for lower ASP products, looking for deals...That continued into Q2, and we expect it to continue into Q3. We're seeing signs of it continuing in Q3." - Amazon (AMZN 0.00%↑) CFO Brian T. Olsavsky

"We were expecting our categories to be down low-single-digits as consumers remain under pressure from the cumulative impact of inflation over the last several years. And that outlook in terms of category growth has not changed. It's effectively what we've seen in the first half of the year." - Newell Brands (NWL 0.00%↑)

"I think we are operating in a challenging consumer environment. You see the impact of that in away-from-home consumption." - Starbucks (SBUX 0.00%↑) CEO-elect Laxman Narasimhan

"We see the same trend that we have seen in the last couple of quarters. The lower-income consumer is reducing the frequency the higher-income consumer is increasing their frequency...We have seen traffic down about 2%." - The Wendy's (WEN 0.00%↑) CFO Gunther Plosch

"The consumer environment continues to be challenging with conditions we saw towards the end of fiscal 24 persisting into fiscal 25." - Diageo (DEO 0.00%↑)

Home goods have been particularly hard-hit

"Customers remain cautious in their spending on the home and our credit card data suggests that the category was down by nearly 25% from the peak we saw in the fourth quarter of 2021. This mirrors the magnitude of the peak-to-trough correction the home furnishing space experienced during the Great Financial Crisis, according to U.S. Census Bureau data. Importantly, this calculation is on nominal dollars. Adjusting for inflation suggests we're now in the midst of a correction in excess of 35% and an unprecedented level of pullback in our sector. We see 3 clear factors behind this correction. One, the malaise in the housing market; two, overspending in 2020 and 2021 that has warped the historic replacement cycle; and three, a slowing U.S. economy." - Wayfair (W 0.00%↑) CEO 

There are some positive signs though

"Overall we are seeing volume growth start to rebound as inflation cools. Consumer incomes are rising, which helps to reduce the inflation-driven financial strain on many households. As a result, private label growth in our categories is decelerating, while branded share growth is improving." - Mondelez International (MDLZ 0.00%↑) CEO Dirk Van de Put

"The bottom line there is that for now, the consumer is supported, and that's pretty much irrelevant of income cohort, is supported by a strong labor market...While there are some signs of labor market growth moderating, this is off very strong levels of job creation." - Mastercard (MA 0.00%↑) CEO Michael Miebach

"There's some cautious folks out there on the spend side. The good news for us is people are prioritizing getting on vacation. We're seeing that in our resort occupancies at 90-plus percent." - Marriott Vacations Worldwide Corporation ( VAC 0.00%↑) CEO John Geller

"The company continues to experience strong consumer demand. In the second quarter, we continued to see strong bookings with our 12-month forward book position at the upper end of our optimal range on strong pricing." - Norwegian Cruise Line (NCLH 0.00%↑) CEO Harry J. Sommer

"Dealers are reporting more inbound calls. However, many consumers remain hesitant to pull the trigger in the current economic cycle. We view this as a positive sign for the future." - Pool (POOL 0.00%↑) CEO Peter D. Arvan

Inflation is still a bit above 2%

"We've seen inflation cool, but to varying degrees across carded and non-carded categories. Price levels are still elevated for many goods and services. Interest rates also remain elevated, but many central banks have started to ease and economic indicators support broader rate reductions." - Mastercard ( MA 0.00%↑) CEO Michael Miebach

"We generally think of inflation as somewhere around 3%. And of course, we all know that could be up or down. But our goal is to mitigate some or all of that." - Norwegian Cruise Line (NCLH 0.00%↑) CFO Mark A. Kempa

The Fed sees the economy as balanced

"It's neither an overheating economy nor is it a sharply weakening economy. It's kind of what you would want to see, but of course, the job is never done...Recent indicators suggest that economic activity has continued to expand at a solid pace." - US Federal Reserve Chair Jerome Powell

They maintained a restrictive policy

"We are maintaining our restrictive stance of monetary policy in order to keep demand in line with supply and reduce inflationary pressures. We are attentive to risks to both sides of our dual mandate." - US Federal Reserve Chair Jerome Powell

But policy can begin to get a little less restrictive

"The job is not done on inflation, but nonetheless, we can afford to begin to dial back the restriction in our policy rate...a reduction in our policy rate could be on the table as soon as the next meeting in September." - US Federal Reserve Chair Jerome Powell

They weren't thinking about a 50bp cut at their meeting

"I don't want to say, I don't want to be really specific about what we're going to do but that's not something we're thinking about right now." - US Federal Reserve Chair Jerome Powell

International