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After years of above-target inflation, geopolitical chaos and recession in Europe, the US economy remains resilient. The reason for that is mostly the American consumer, with spending accounting for about 70% of gross domestic product.
But recent data shows that Americans are spending less money than they used to. That’s a scary prospect for economists.
On Thursday, Bank of America CEO Brian Moynihan said that his customers are slowing down the rate of their purchases. Consumer payments, as measured through credit cards, checks and ATM withdrawals, have grown by 3.5% since last year, he said. That’s down from 10% growth the year before.
“Both of our customer bases that have a lot to do with how the American economy runs are saying, ‘You know what? I’m being careful, slowing things down,’” Moynihan said, referring to both consumers and businesses, at a financial conference in New York.
A recent survey by accounting firm KPMG found a similar pattern. While people are still mostly optimistic about their own financial situations, they worry about the direction of the US economy, they found. Additionally, 65% of those surveyed, including nearly 60% of those making $200,000 or more, said that they expect to do more discount shopping this year, while 14% plan to use buy now, pay later services.
Before the Bell spoke with Peter Torrente, a banking and capital markets leader in KPMG’s audit practice, about what that means for the second half of the year and beyond.
This interview has been edited for length and clarity.
Before the Bell: Your 2024 CEO survey showed that business leaders are optimistic about the economy but not so much about their own company’s prospects. This survey shows that consumers feel just the opposite — optimistic about their own financial standing but not about the macroeconomic environment. How do you explain that discrepancy?
Peter Torrente: It’s clear that Americans are viewing the growth prospects of the economy through an inflation lens, and that impact is experienced in their everyday lives. So despite the tailwinds of the strong labor market and low unemployment, the erosion of purchasing power is making it harder to be certain about what’s ahead in the coming year. That’s coloring consumers’ outlook.
While we see in the survey that consumers are more optimistic about their own financial situation, they’re less optimistic about the overall prospects for growth in the US economy in the coming year compared to business leaders in our CEO survey. You see that come through in some of the statistics around shopping patterns and habits. Regardless of income level, consumers are seeking to do more discounted shopping over the year ahead despite the strong labor market and household balance sheets.
People are changing their shopping habits regardless of income level. They’re looking to make their paycheck go further.
We’ve written about how bifurcation is the word of the summer. Do you see any stratification among consumers?
Yeah, about 65% of those surveyed said that they’re planning to do more discounted shopping. And 14% are planning to use buy now, pay later services. This data actually indicates that things aren’t totally bifurcated among income levels — everyone is changing their habits.
Something that surprised me in this survey is that 75% of respondents don’t believe that interest rate cuts by the Federal Reserve will improve their personal financial situation. There’s so much focus on the Fed among investors, but consumers don’t seem to be as interested…
There have been lots of predictions about interest rates over the last few years, and the goalposts keep changing and outlets keep changing on those. I’m not sure how much consumers can anchor to when a rate cut is coming or if there will even be a rate cut. So people are just less focused on that, they don’t think it will be helpful in the short term.
Two influential advisory firms have urged shareholders to vote against Elon Musk’s contentious $51 billion pay package and raised concerns about the CEO’s numerous side projects, reports my colleague Allison Morrow.
On Friday, Institutional Shareholder Services called the package “excessive” and noted that shareholder concerns “have not been sufficiently mitigated” since the package was first approved in 2018.
While recognizing Tesla’s growth and profitability, ISS said Musk’s pay package — first approved in 2018 and thrown out by a judge in January — “was considered outsized from the start” and has “failed to accomplish certain of the board’s stated objectives,” including focusing Musk “more closely on the Tesla organization, as opposed to his other businesses.”
That warning came a few days after Glass Lewis, another prominent advisory firm, published a 71-page report that criticized the size of the compensation plan and warned about Musk’s “slate of extraordinarily time-consuming projects” that are unrelated to Tesla, such as X, the company formerly known as Twitter.
Musk pushed back against the Glass Lewis report on Wednesday, telling shareholders in a letter that the firm “omits key considerations, uses faulty logic, and relies on speculation and hypotheticals.” The letter urges shareholders to approve the pay package as well as the board’s proposal to formally move Tesla’s headquarters to Texas from Delaware.
The move to Texas, where Musk also operates SpaceX, was proposed shortly after a Delaware Chancery Court judge sided with Tesla shareholders who challenged the legality of the 2018 pay package.
Costco’s new chief financial officer has a reassuring message for inflation-weary customers: Don’t worry about the price of the $1.50 hot dog-soda combo.
“To clear up some recent media speculation, I also want to confirm the $1.50 hot dog price is safe,” Costco CFO Gary Millerchip said on an earnings call with analysts Thursday. It was Millerchip’s first earnings call with analysts since taking over for Richard Galanti, Costco’s colorful finance chief of nearly four decades and the longest-serving CFO of a major US public company.
With Costco’s leadership change — and other longtime deals like Trader Joe’s 19-cent bananas and Planet Fitness’ $10 membership ending amid rising inflation — some had speculated about the future of Costco’s $1.50 hot dog. The price has remained the same since 1985.
If Costco’s hot dog deal kept pace with inflation, it would be three times as expensive today — nearly $4.50. But Costco’s $1.50 combo is a strategic decision, known as a loss-leader: The company is willing to lose money selling the hot dogs at that price as long as it helps Costco draw in and retain customers.