Ever hear of “revenge spending”?
Apparently it’s what we Americans did in the last year or so as we emerged from the worst of the COVID-19 pandemic.
Or as consumer goods analyst Nik Modi explains it, we engaged in a kind of “retail therapy at the societal level,” getting out and making ourselves feel better by spending money saved up when we were homebound early in the pandemic.
Inflation tapped the brakes on that here, but Modi is concerned that a new round of revenge spending will occur as China — “the largest consumption economy” — reopens from its long COVID lockdown.
“This is what I worry the most about: China’s reopening could disrupt the current logic and the current trend” in inflation, which is moderating in the U.S., by pushing up demand, which in turn pressures supply worldwide and results in higher costs of production.
Modi, a managing director at global investment firm RBC Capital Markets, offered his take on the economy in a webinar hosted last week by The Food Institute. He sees clouds on the horizon, but is not convinced that another inflation spike will come as Chinese consumers let loose.
Why? Primarily because goods producers see that consumers can’t continue to bear ever-rising prices.
The U.S. Bureau of Labor Statistics reported last month that consumer prices were up 6.4% in January from a year earlier, a slower year-over-year rise than was seen in January 2022, but with grocery, energy and shelter costs still running high.
“Consumers have been under pressure,” Modi said. “We’re right at the cusp of things really starting to … devolve in a negative way in the next few months.”
He described distinct pressure points for low-, middle- and high-income consumers. For those with lower incomes, gas and food inflation have a direct bearing on purchasing power; for middle-income earners, it’s housing; for high earners, it’s the stock market.
Each group has felt stressors of late, he said: consumers now are spending 11% of disposable income on food and energy, a percentage point above the five-year average pre-pandemic; the cost of shelter is rising, with 29% of monthly income spent on housing today versus the typical 20%; and with the stock market down 19% last year, bonuses on Wall Street were less robust.
As a result, all classes of consumers are starting to trade down: in the labels they purchase, in the retailers they shop, in how frequently they buy.
Modi pointed to retail giant Walmart, which in reporting fourth-quarter and year-end results in February noted it has begun to see new segments of consumers seeking inflation relief (even as the company itself moderated sales guidance for the current year).
Or, as Walmart’s CEO said: “We’re gaining share across income cohorts, including at the higher end, which made up nearly half of the gains we saw in the U.S. again this quarter.”
Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at marlenejkennedy@gmail.com.