Important information about the change in the consumption behavior of the US consumer
$WMT (Walmart Inc.) and $TGT (Target Corp) published their earnings reports for the October quarter.
Walmart's sales were better than expected. Target was worse than expected.
This is due to three factors:
- Inflation makes consumers more cautious about discretionary purchases
- The Fed's interest rate hikes are starting to bite into consumption
- After the pandemic, consumption has shifted from discretionary goods to services.
Walmart's management said that consumers are now paying attention when it comes to spending. Their consumption was mainly in cheap foods such as hot dogs, beans and peanut butter, instead of meat. Consumers don't buy more expensive items like televisions and deep fryers, and spend less on appareal and home decor.
According to Target, the change in consumer behavior was particularly visible in October and has continued in November. Consumers struggle with higher prices and buy only the things they need and not spend on the things they want. Consumers also choose products of a cheaper brand.
Conclusion
Consumption has slowed down in October and the pace has continued in November. This means that the last quarter of the year can be a disappointment for many consumption-dependent companies.
Consumption is now focused on necessities, and even in those, the consumer chooses cheaper alternatives and stores' own brands. This is negative for brand companies in the consumer goods sector.
The consumer is careful with larger purchases and hunts for discounts. Now they save on electronics, home furnishings and clothes. It is already known that, for example, sales of computers have been weak. Will the trend also spread to phones?
In the big picture, the ongoing stock rally may not be sustainable if the US consumer hits brakes. However, it is the engine of the global economy. So we think the market will continue to be volatile.
The silver lining to the weak news is that the Fed's interest rate hikes are clearly starting to bite. If consumption falls, inflation will come down quickly and interest rate hikes can be stopped earlier than the Fed threatened in November. This can already be indicated at the December meeting.... Show More
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Tue Jun 24 2025 07:01:39 GMT+0000 (Coordinated Universal Time)
