After years of unbridled consumer spending on everything from home improvement to dream vacations, some companies are now finding the limits of their pricing power.
Shipping giant FedEx last week said customers have shied away from speedier, pricier shipping options. Airlines including Southwest discounted off-peak fares in the fall. The likes of Target and Cheerios maker General Mills have cut their sales outlooks as more consumers watch their budgets.
It’s a shift from the recent years when consumers spent at a breakneck pace — and at high prices — lifting corporate revenues to new records. But faced with weakening demand, more price-sensitive consumers, easing inflation and better supply, some sectors are now forced to find profit growth without the tailwind of price hikes.
The answer across industries has been to cut costs, whether it’s through layoffs or buyouts, or simply becoming more efficient. Executives have spent the past several weeks selling these cost-cutting plans to Wall Street.
“But faced with weakening demand, more price-sensitive consumers, easing inflation and better supply, some sectors are now forced to find profit growth without the tailwind of price hikes.”
Oh no!!
”There is plenty to cheer about the state of the U.S. consumer — the job market is still strong, unemployment is low and spending has been resilient.”
But consumers have also tapped into their savings and racked up credit card debt, with balances reaching a record $1.08 trillion at the end of the third quarter, according to the New York Federal Reserve. Credit card delinquency rates are above pre-pandemic levels.
Bank of America’s Kwon said he expects earnings to improve even if U.S. economic growth slows due in part to company strategy shifts.
“Companies are really focusing on what they can cut,” he said. “Companies have overhired and overbuilt capacity. They’ve stopped doing that.”
The tone-deafness to the constant contradictions in this article is mind blowing.