American consumers are showing vulnerability ahead of the peak business earnings period next month, as some struggle to pay their bills and others delay their purchases of cars, sneakers and household items, weekly figures show.
Data released Friday showed that US consumer spending increased more than expected in August, but aggressive interest rate hikes by the Federal Reserve to combat stubbornly high inflation are slowing demand.
Nike, maker of Air Jordan and Converse sneakers, saw its shares fall Friday to the lowest level in 2.5 years, a day after the company said it needed bigger discounts to clear accumulated inventories.
Evidence of slower spending…
We see evidence of slowing spending across much of the consumer market, with the combination of inflation and rising interest rates putting pressure on household budgets, said Garrett Nelson, VP and senior equity analyst at CFRA Research.
Expensive items such as furniture and cars, which are usually financed, have been especially hard hit, he said.
Rent-A-Center Inc, a retailer that rents televisions, sofas and appliances to lower-income customers, on Thursday lowered its profit forecast for the third quarter on the grounds of the weakening economy.
External economic conditions have continued to deteriorate in recent months, said Mitch Fadel, chief executive of Rent-A-Center, in a statement. This has affected both store traffic and customer payment behavior, he said.
CarMax Inc, seller of used cars, said Thursday that higher interest rates and inflation are beginning to take a toll on demand for cars, a warning that spooked investors in the broader auto sector.
Clearly, consumers have decisions to make … I just think they're prioritizing their spending a little differently, Chief Executive Officer William Nash told analysts.
Bed Bath & Beyond Inc, a retailer of household goods, said Thursday that net sales fell 28% as the company gave heavy discounts to clear its shelves of unsold inventory.
We are now in a situation where many companies have inventory issues to solve and at the same time inflation is having some impact on consumer spending, said David Swartz, analyst at Morningstar.
Caution even creeps into spending on travel, a red-hot sector that has benefited from the loosening of COVID restrictions.
Cruise line Carnival Corp saw its shares plummet more than 20% Friday after reporting third-quarter results that fell far short of analysts' estimates.
Carnival has applied heavy discounting and increased advertising to attract passengers after a long period of pandemic. The company is also more exposed to the mass category, which suffers more from inflation.
All the weak results and warnings this week have made investors cautious heading into October, when the majority of companies report results, CFRA's Nelson said.