Data from\u00a0HundredX,\u00a0a company\u00a0which gives a sense of consumer trends and feedback,\u00a0also\u00a0suggests weakening future purchase intent from that cohort in recent weeks. The weakness\u00a0seems to be\u00a0most pronounced among low-income and younger consumers.\u00a0<\/p>\n
When you look at some of the other income quintiles, our economists are still expecting the middle-income cohort (that\u2019s\u00a0the third quintile) to see the highest DCF\u00a0growth (around 6%) on the back of the One Big Beautiful Bill tax cuts.\u00a0<\/p>\n
How is rising inflation\u00a0feeding into consumer spending?
\n\u00a0<\/p>\n
Bonnie\u00a0Herzog:\u00a0In broad staples, which tend to be lower-priced items,\u00a0we\u2019re\u00a0seeing increased pressure to\u00a0downtrade, and private label\u00a0products are\u00a0taking a little share.\u00a0<\/p>\n
We\u2019ve\u00a0also seen\u00a0global end-market demand in a lot of\u00a0household product\u00a0categories slow\u00a0in the last five or six quarters. I think\u00a0it\u2019s\u00a0a function of the consumer being more conservative in their purchases of these everyday use items and conserving more.\u00a0\u00a0<\/p>\n
For example, everyone is\u00a0probably washing\u00a0their clothes, but\u00a0maybe they\u2019re\u00a0putting more clothes in each load to make their detergent go further.\u00a0Those\u00a0behaviors\u00a0could afford them the ability to spend in other areas\u2014whether\u00a0it\u2019s\u00a0experiences, travel etc.\u00a0<\/p>\n
How\u00a0do higher costs\u00a0impact US\u00a0companies?
\n\u00a0<\/p>\n
Kate\u00a0McShane:\u00a0We\u2019ve\u00a0been in a period of\u00a0higher\u00a0inflation now for around five years:\u00a0The supply chain challenges coming out of the\u00a0Covid-19\u00a0pandemic\u00a0combined\u00a0with tariffs have resulted in higher prices, and rising fuel prices\u00a0are\u00a0another higher input cost for products.\u00a0<\/p>\n
That\u2019s\u00a0definitely going\u00a0to mean\u00a0higher costs\u00a0for some of our companies to manage.\u00a0We\u2019re\u00a0already hearing from some of our retailers that\u00a0they\u2019re\u00a0experiencing higher fuel surcharges, which will hurt margins a little bit,\u00a0or\u00a0maybe\u00a0they\u00a0will\u00a0have to\u00a0pass some of that price through.\u00a0<\/p>\n
But the consumer has been\u00a0relatively resilient\u2014that\u2019s\u00a0what this discretionary cash flow model has told us,\u00a0and\u00a0what\u00a0it\u2019s\u00a0still telling us, and a lot of our companies are talking\u00a0about\u00a0a choiceful, resilient consumer.\u00a0<\/p>\n
At the lowest end of that income cohort, though, at $50,000 income per year and below,\u00a0there\u2019s\u00a0only so many ways they can stretch their dollar.\u00a0I think that companies serving a true\u00a0lower-income consumer, that\u00a0aren\u2019t\u00a0necessarily getting a benefit of trade-down from a middle-income consumer,\u00a0have been tougher stocks to own in this environment.\u00a0<\/p>\n
Bonnie\u00a0Herzog: In broader staples, many companies are facing greater cost pressures from the rising cost of oil and oil derivatives. These large multi-national companies have all acknowledged some form of hedging, but\u00a0they\u2019ve\u00a0also\u00a0stated\u00a0that there will be some damage:\u00a0They\u2019re\u00a0going to face some gross margin headwinds.\u00a0\u00a0<\/p>\n
They\u2019re\u00a0all talking about some mitigation initiatives\u00a0such as\u00a0pulling forward productivity initiatives\u00a0and\u00a0cost-saving plans. But\u00a0interestingly,\u00a0in this\u00a0inflationary\u00a0environment,\u00a0not many\u00a0of\u00a0the companies are talking\u00a0about\u00a0the ability to\u00a0pass more costs on to the consumer, given how fragile and pressured the consumer is.\u00a0<\/p>\n
Are you concerned about a\u00a0recession ahead?
\n\u00a0<\/p>\n
Bonnie Herzog: Our economists\u00a0are forecasting\u00a0a\u00a030% 12-month recession probability for the US.\u00a0<\/p>\n
In my conversations with\u00a0the large\u00a0staples\u00a0companies,\u00a0I\u2019m\u00a0hearing a lot about broad resilience\u00a0and\u00a0the bifurcation of consumers, so\u00a0there\u2019s\u00a0certainly\u00a0a slightly more cautious outlook for the consumer. But no one has mentioned the \u201cr-word\u201d to me\u00a0so far.\u00a0<\/p>\n
\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"Data from\u00a0HundredX,\u00a0a company\u00a0which gives a sense of consumer trends and feedback,\u00a0also\u00a0suggests weakening future purchase intent from that cohort…\n","protected":false},"author":2,"featured_media":439207,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[72,113,61,60,8529],"class_list":["post-439206","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-ie","tag-ireland","tag-macroeconomics"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/439206","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=439206"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/439206\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/439207"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=439206"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=439206"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=439206"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}