Consumers Are Lying

Two articles came to my attention recently about consumer spending and sentiment.  Both articles paint a picture of tightening and changing consumer behaviors due to inflation and other economic factors.

Call me a skeptic.  And it doesn’t take much searching to find data that disagrees with both articles.  I think consumers are lying.

So let’s dive in. 

 

Where Are Consumers Spending

The first article is from The Street titled Here’s Where Americans Are Spending Their Money and was trending on various media outlets in early April.  It lays the foundation by detailing inflation numbers and rising labor costs etc. 

But then this caught my attention:

“As household staples take up more space in monthly budgets and eat away at savings, consumers won’t be able to afford major purchases like houses or cars,” Morning Consult economic analyst Kayla Bruun wrote in a recent report on consumer spending.  It may be difficult for them to justify discretionary expenses like restaurant meals and vacations,” she said. 

Really?  By the way this quote is phrased I thought the analyst might be predicting that these things will happen, but perhaps are not happening yet.  Then later down in the article a different quote from another analyst said:

Consumers have already slowed down their spending for eating out or monthly subscriptions, Tayne said. 

So this analyst focused on eating out as the other did but said the decreased spending is already happening.  Well FSR magazine which tracks all the big chain restaurants in America (which is sadly most restaurants nowadays) disagrees. 

Their article titled Further Proof Dining Out is Making a Comeback in 2022 details numerous data points showing consumers are dining out more and spending more at restaurants.  The subheading of their article is “consumer demand is picking up in more areas than one”.  

I think FSR is right, at least that’s what I see in my area.  I ride my bikes a lot so I have eyes on how crowded local restaurants are since most now have outdoor seating after COVID.  Let’s just say as the spring weather came this year things have been absolutely nuts.  Places are packed. 

I went out to eat a little while back and asked the waitress how business has been.  She said it’s been back to pre-pandemic levels and maybe even better.  Is this anecdotal?  Of course it is.  But the FSR article sites real data.

 

Real Estate And Cars

As for the analyst comment above about consumers not being able to afford major purchases such as homes, call me a skeptic again.  But don’t listen to me, look at the facts.  Bidding wars are still at record highs. 

Early this year 52% of homes sold had bidding wars, “the greatest share of homes sold above asking price ever recorded by Redfin, in data going back to February 2012” as the article details. 

Anecdotally, a neighbor of mine is trying to move to a different area.  She has found three home she likes but has been outbid all three times.  In one case the house she liked sold for $120,000 over asking price.

As for new car sales the picture is neutral but Marketwatch still sees a slight increase in April. 

So the article from The Street seems full of dubious information and postulation.  More pointedly, surveying consumers about their spending habits does not really reflect what they’re actually doing.

 

Breaking Point?

The second article is from Bloomberg titled American Consumers Are Starting to Hit Their Breaking Point (possible paywall) and it was trending for a while all over the place including heavily on social media. 

It sites a lot of consumer sentiment data that is all trending in a negative direction.  It actually says sentiment is the lowest since 2011, the theme being consumers have had enough.  But then goes on to say this:

The line from the bulls has been to watch what consumers do, not what they say. And for the most part, the bulls have been right about consumer spending, which is why many investors remain positive on stocks and the riskier parts of the credit markets. Although Americans have griped about higher prices, they have kept buying goods and have increasingly gone out to eat and started traveling as the pandemic waned.

It’s about what people are doing, not what they’re saying in a survey.  In other words, consumers are lying.

Humans are famous for saying one thing or claiming to believe something, yet behaving totally differently.  We’ve all seen annoying hypocrites who have 4,500 square foot homes and two massive gas-guzzling SUVs in the driveway that have “climate voter” stickers on them. 

Does anyone believe folks like that actually care about the climate?  Actions speak louder than words.  People like that are a dime a dozen in the D.C. metro area, sadly.

Actions show what people really feel and believe, not what they say.  So while The Street and Bloomberg articles cite sentiment that consumers are tightening their purse strings, real data says otherwise.

Could these two articles however be on to something that still lies on the horizon?  Could consumers start to tighten their belts for real? 

Sure, but I have my doubts.  I think reduced spending during COVID and a high savings rate pushed the American consumer to the limit, because that’s not behavior most consumers enjoy. 

Most Americans hate saving and love spending.  They love going out to eat as much as possible.  And now that we’re 2 years past the start of COVID I think most folks are determined to go back to their normal behaviors – inflation or rising interest rates be damned.  I hope I’m wrong, we’ll see.