A flurry of earnings reports in recent weeks show consumers tightening up and prioritizing purchases as interest rates rise and inflation continues. But Club retailers — Costco ( COST ) and Procter & Gamble ( PG ) chief among them — appear to be in a position to tap into changing consumer behavior in a growing economic climate. This season of corporate acquisitions comes as the US Federal Reserve on Wednesday raised its short-term lending rate by 75 basis points, to the highest level since January 2008, making credit more expensive for Americans and reducing discretionary spending. At the same time, inflation has been steady, with consumer prices rising 8.2% year over year in September, according to the US Bureau of Labor Statistics. But while consumers have become more conscious about spending money, demand for essentials such as food, beverages and household items has remained stagnant. Companies like P&G and Costco have benefited, with sales rising in the last quarter. In contrast, e-commerce giant Amazon ( AMZN ) has seen sales growth slow, in part because consumers are cutting back on online shopping. Despite the change in spending habits, US consumers have a tight budget, with lenders like Club owned by Wells Fargo ( WFC ) showing higher spending on credit cards that translated into higher income at the bank in the third quarter. Slower spending Fearing a recession, consumers are becoming more conscious of where they spend their hard-earned money. S&P 500 companies cited sluggish consumer demand at levels not seen since the height of the Covid-19 pandemic, according to Bank of America economists who study consumer spending. Spending on holidays this year is down 5% from 2021 levels and is “on a steep downward trajectory,” Barclays research showed. The survey also showed that consumers are starting to buy gifts earlier this year, with a preference for cheaper items. Analysts at Barclays said the biggest “slow signal” came from Amazon. “We see evidence that consumers are continuing, if not, worsening,” analysts wrote in a note last week. However, the slow start to holiday shopping surprised analysts, especially after Amazon launched a second sales event for Prime subscribers last month. The event is expected to boost sales at the start of the holiday season but is said to have fallen short of Amazon’s Prime Day in July. “With consumers seemingly not paying attention to advertising … we expect to see a return to pre-pandemic levels as clearance activity increases as we move into December and January,” Barclays analysts argued. Amazon’s stock is down about 46% for the year, and was trading at about $90 a share on Monday. Consumer preferences The third segment shows that consumers are focusing their shopping on essentials, while reducing spending on clothing or entertainment, resulting in the slow growth of retailers that sell essentials. Costco’s ( COST ) net sales rose nearly 15% year over year, to $70.76 billion, in its fourth fiscal quarter, as it reported a 92.6% membership renewal in the US and Canada. For October, the retailer reported sales growth of 6.7%, slower than the growth seen in September and August. Management acknowledged that sales growth is lower in 2022 but said it will “hit the rest of the industry.” However, Wells Fargo on Monday downgraded Costco to equal weight from overweight and lowered its price target to $490 from $600. “Although the price should be important to customers, COST has… In response, Jim Cramer on Monday called the revision “a big mistake if we are going to fall.” To this end, Morgan Stanley analysts remain focused on the seller. “We think that COST is preparing for a strong season , especially in areas where consumers have retreated in the past two years,” analysts wrote in a recent report. Costco’s stock was down about 1%, at around $482 a share on Monday. Meanwhile, P&G reported a 7% year-over-year sales decline. year in its first fiscal quarter, although it raised prices to maintain its profits. But buyers are buying “infrequently” or “selling PG products at lower prices,” JPMorgan analysts wrote in a recent note. [are] price tag but PG [is] is still operating very strongly,” he added. Wells Fargo’s third-quarter results showed lower delinquencies and higher loan losses at all of the bank’s banks. “We expect loan losses to moderate over time,” analysts wrote in a note. “Cash of Wells Fargo’s credit cards rose 8% year over year, while management said the credit card. Spending increased by 25%. Meanwhile, Visa ( V ) posted $192.5 billion in revenue in the 12 months ending Sept. 30, an increase of 17% year on year. The company rd cited “very strong” momentum following its latest results, while rival Mastercard ( MA ) said consumer spending remained “strong” when it reported last quarter. Bottom line, consumers can bear the brunt of inflation. But with less money in their pockets, spending habits are becoming defensive, as economic conditions worsen. That’s why we stand out from consumer companies with recession-proof characteristics that can still provide value to consumers in a financial crisis, while also providing stable income to shareholders. (Jim Cramer’s Charitable Trust is long AMZN, AMD, PG, COST, STZ, WFC. See here for a complete list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive trading alerts before Jim. they make sales. Jim waits 45 minutes after sending a trade alert before buying or selling stocks in his charity. If Jim talked about stocks on CNBC TV, he would wait 72 hours after issuing a trade warning before trading. THE ADVANTAGE OF THE COMING CLUB IS FOLLOWED BY OUR TERMS AND CONDITIONS AND PRIVACY POLICY, INCLUDING A REMEMBER. NO WARRANTY OR SERVICE EXISTS, OR IS MADE, WHEN YOU RECEIVE ANY REASON PROVIDED IN CONNECTION WITH INVESTING CLUB. THERE ARE NO CONSEQUENCES OR BENEFITS.
People shop at a supermarket as inflation affects consumer prices in New York City, June 10, 2022.
Andrew Kelly | Reuters
Economic reports in recent weeks show that consumers are tightening their belts and prioritizing things.as interest rates rise and inflation continues. But the Club’s products – Costco (COST) is Procter & Gamble (PG) chief among them – appears to have the potential to steer consumer behavior that is changing amid the worsening financial crisis.
