Economy
30 May 2023
Inflation, consumer spending ticked up in April: PCE
Consumer sentiment fell in May, indicating growing anxiety about a downturn.
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Summer is here, but with it comes a reminder that the economic picture isn’t changing for the consumer.
On Friday, new data from the Personal Consumption Expenditures Index showed that core inflation ticked up to 4.7% year-over-year in April, up slightly from 4.6% in March. On a monthly basis, core inflation rose 0.4%, compared with 0.3% in March.
The increase means inflation showed signs of growing in April, even as the narrative presented in recent months has been one of slowing price increases.
Meanwhile, consumer spending jumped 0.8% on a monthly basis. It’s a sign that people are continuing to shop, even as inflation hangs around like the humidity in August.
What it means for the Fed: The inflation uptick gives the Federal Reserve new challenges as it weighs whether to pause a monthslong campaign of interest rate hikes that are designed to bring down inflation. Inflation had been cooling as the Fed lowered the size of the hikes in recent months. Now, it is considering whether to stop the hikes, but is confronted with fresh evidence that inflation moved back up. Should it do more to cool inflation? It's a tricky question, especially given the fact that interest rate hikes take months to work their way through the economy. While PCE is the preferred measure of inflation by the Fed’s key committee, members will have fresh data on inflation and consumer spending from other indices, such as the Consumer Price Index, that are set to be released in the next two weeks when they meet on June 13.
Consumer sentiment drops
Elsewhere, there are signs that the consumer mood is starting to dampen. Consumer sentiment fell 7% in May, as the debt ceiling crisis dragged down spirits. The University of Michigan’s index had been rising for months after hitting all-time lows in June 2022. But May’s decline erased half of the gains made in that time.
In particular, consumers appear to be fearing a rough road ahead. Consumers’ outlook for the year ahead fell 17%, while long-run expectations plunged 13%.
“Consumers are concerned that any recession to come may cause lasting pain,” wrote University of Michigan Survey of Consumers Joanne Hsu.
Notably, however, there were more stable views on inflation. Expectations for the year ahead fell to 4.2%, as compared with 4.6% last month. Uncertainty about inflatin also fell significantly to its lowest level in nearly two years.
“This suggests that consumer views over short-run inflation may be stabilizing following four months of vacillation,” Hsu wrote.
Long-run inflation expectations remained within the range of 2.9%-3.1%, as they have been for months.
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Marketing
09 June 2023
'There's a lot of ways to frame value'
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
Photo by Kelly Common on Unsplash
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.
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