Recent reports from Macy’s, Target and Costco have indicated that Americans are starting to change their spending habits.
The three stores have recently released their quarterly outlooks. Macy’s said Thursday that it began to see a shift in late March.
“During the first quarter, we delivered a solid beat on our gross margin rate and bottom line expectations enabled by our disciplined teams, strength of our inventory management and operational efficiencies. We planned the year assuming that the economic health of the consumer would be challenged, but starting in late March, demand trends weakened further in our discretionary categories,” said Jeff Gennette, chairman and chief executive officer of Macy’s.
Macy’s said on Thursday it’s “taking a cautious approach to the remainder of the year and is reducing its annual 2023 sales and earnings guidance.”
Fed economists project 'mild' recession later this year
The central bank noted that recent developments in the banking sector will likely weigh negatively on economic activity, hiring and inflation.
Costco CFO Richard Galanti noted that consumers tend to shift their meat-buying habits in times of recession.
“Historically, we've always seen some, like within fresh protein, we've always seen when there's a recession, like in ‘99 or ‘08, ‘09, we would see some sales penetration shift from beef to poultry and pork,” he said. “We've seen some of that now.”
Galanti noted his head of buying saw this shift a few months ago.
Galanti also said there has been a shift in the number of consumers buying private-label items, which tend to be sold at lower prices than name brands.
“That would again, and at least anecdotally suggest, that we've seen people looking for better bargains,” he said.
Galanti noted that one caveat is buying habits changed during the pandemic, so it’s been more difficult to compare year-over-year sales since 2020.
“We're comparing against two years of outsized growth in some of those things as people were buying things from their home,” he said. “We saw outside sales and indoor and outdoor furniture and electronics and TVs and exercise equipment. We're not only comparing against this quote-unquote recession concerns about big-ticket items, but comparing against uber strength over the last two years prior to that.”
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Christina Hennington, Target’s executive vice president and chief growth officer, noted softer year-over-year sales on discretionary home, apparel and hardline categories. These trends started in March and continued in April, she noted in a call with investors last month.
“American consumers continue to face difficult trade-off decisions as they juggle the wants and needs of their families,” she said. “Consumer saving rates are down, and while inflation rates are finally declining, so is consumer confidence. The fear of a looming recession weighs heavily on many American families and though discretionary spending remains soft, our guests are still looking to sprinkle some affordable joy into their regular shopping at Target.”
Economists have remained split on whether the U.S. is bound for a recession in the coming year. The job market has remained strong with unemployment being near a 50-year low in April. Updated job figures come out on Friday for May.
Meanwhile, inflation remains elevated, albeit lower than a year ago. The latest consumer price index for April was 4.9%, a drop from a peak of 9.2% in June 2022. The Federal Reserve, however, has kept interest rates at a 15-year high as it hopes to return inflation to 2% annually.
While there is no universal definition of a recession, many define a recession as a period of two quarters in a row with negative economic growth.
