Last weekend, I was at the Avalon in Alpharetta to do a little shopping and get a bite to eat.
I was getting out of my car, and I guy had came over to talk. He was a younger guy - maybe mid-20s - who was clearly into cars. I have an Alfa Romeo, which is an Italian sports sedan.
The popularity in the U.S. is rising, but they’re not as ubiquitous as your classic BMW or Lexus models. So, I tend to get a lot of questions.
He was asking about how the car drives, what the interior is like, etc. Nice kid. I got curious and began to ask about gas prices and everyday consumer prices in general.
Gas prices were starting to affect him in the since that it crowded out discretionary spending and even some necessities. Gas at $4.10/gal was “affordable” but the two dinners out a week he usually had were not. He shifted down from name brands to generic when shopping and such.
My sample size that day may have been n = 1, but this is something millions of Americans are feeling and we’ve been seeing it bare out.
Heading into Q1-22, I said to underweight consumer discretionary and retail equities. The iShares Consumer Discretionary ETF ($XLY) and iShares Consumer Retail ETF ($XRT) are both down 32% YTD.
The earning results from Walmart and Target startled markets, and Target was down as much as 30% yesterday after they reported a huge miss.
Walmart stated that a lot of their price sensitive customers are trading down to private label brands, say going from Cheerios to “Bunches of O's.”
Target earnings call reported “lower than expected sales of discretionary merchandise.” Both Big Box retailers cite supply chain woes, labor and energy costs as key problems. Both cut future guidance.
I’ve been earning about the state of the U.S. consumer for months along with warning about the real effect of higher consumer prices in “The Macro Brief: Inflation Eats The Consumer As Saving Rate Continues To Drop.”
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