Personal finance

Inflation’s finally slowing, but not fast enough to boost your budget this holiday

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  • Inflation is finally easing, but the relief may be coming too late for many consumers.
  • They’ve already traded down and cut luxuries. Now, they’re digging deeper to stretch their money.
  • Some have started cutting back on spending on their kids or walked away empty handed in stores.

Inflation is finally showing signs of cooling, but subtle shifts in how Americans are shopping might be flashing warnings that the relief isn’t enough to ease the strain on their finances this holiday season.

While economists have mostly focused on shoppers trading down to store brands or cutting spending on nonessential items like recreational activities and home furnishings, a deeper dive into how consumers are shopping shows many of them are no longer just trying to save money but practically living paycheck to paycheck. As of November, 63% of Americans were living that way, according to a monthly LendingClub report. That’s up from 60% in October and near the year’s peak of 64% in March.

Even as inflation has slowed to 7.1% in the 12 months to November from a 40-year of high of 9.1% in June, Americans have already buckled under the weight of it. More people are timing purchases around paychecks and maybe, even leaving kids wanting more this holiday, data shows.

The economy has shifted away from a phase when shoppers could buy whatever they wanted, said Marshal Cohen, chief retail industry adviser for analytics firm NPD.”Now the rising cost of living is leaving its mark.”

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In and out shopping but more often

Gas stations and grocery stores can provide windows into how consumers are faring. The more financially stretched consumers are, the more often they’ll go to gas stations and grocery stores.

Instead of filling up the tank, they’ll go more frequently and time their purchases around when they receive their paychecks, Brian Wenzel, chief financial officer at Synchrony Financial, said recently at a Goldman Sachs investor conference.

The same is true for grocery shopping. At the beginning of the summer when inflation was nearing its 40-year high, Walmart executives noted in an earnings conference call that some customers were switching to half gallons of milk from full ones because they couldn’t afford to absorb soaring food prices. Now, those shopping habits have widened out to even more people.

“As shoppers worried about spending too much on groceries, one of the responses was making shorter trips and buying fewer items on each trip to the grocery store” between July and September,” said Rajeev Sharma, founder and CEO of VideoMining, which measures and tracks in-store shopper behavior.

“Quick” trips, where shoppers had fewer than five items in their baskets, rose to 51% of all grocery store runs in the summer and early fall, up from 50% in the spring and early summer. “Stock Up” trips, meanwhile, where shoppers had more than 15 items in tow, remained at 15% of all store visits, he said.

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Kids are going to feel the cutbacks

Normally, parents who feel squeezed will cut spending on themselves first, then their kids. For some families, though, the kids have already been cut off.

Toy and games “sentiment remains terrible” this holiday, with year-over-year receipts showing declines in units sold, trips to the store, and average spend per trip in October and November, said analysts at financial services firm Jefferies.

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And it’s not just toys and games. Gap CEO Bobby Martin said last month that Old Navy and Gap saw weaker sales of baby and kids apparel.

“Old Navy customers still have a propensity to buy. That being said, it continues to experience softness in spending and shopping frequency from its lowest-income consumers,” Bobby Martin, Gap interim CEO, said.

That’s a sign the retailer’s “suffering from an erosion in spending among the family demographic which have pulled back on purchases because of growing financial constraints,” said Neil Saunders, managing director of analytics and consulting firm GlobalData.

At Costco, people are still buying TVs, with unit sales up from a year ago. However, they’re opting for smaller ones, “highlighting another example of consumer weakness,” said Christopher Horvers, a retail analyst with JPMorgan bank.

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The best way to save money is not to spend any

While people are increasingly spending more time comparison shopping this year, there’s been a rise in people walking away without buying anything.

Even those shoppers who normally enter a store and buy their favorite grocery item are taking more time to browse for a lower-priced alternative, said VideoMining’s Sharma. Still, 45% of shoppers who browsed walked away without buying.

“There are many factors that drive the “shopper leakage” or “walk away” rate, but high prices is certainly a major one,” he said. “The average per unit price of a grocery product in the third quarter was $4.21, the highest on record.”

For example, 10% fewer shoppers bought vitamins last quarter verus a year earlier, even though they spent an average of 5% more time looking at them, Sharma said.

Americans will likely pull back on spending even more aggressively next year, said Meagan Schoenberger, an economist with the accounting firm KPMG.

But where?

Maybe candy, which saw a surprising 7% increase in buyers who spent less time shopping it, Sharma said.

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.

The economy has shifted away from a phase when shoppers could buy whatever they wanted, said Marshal Cohen, chief retail industry adviser for analytics firm NPD.”Now the rising cost of living is leaving its mark.”

Source: https://www.usatoday.com/story/money/personalfinance/2022/12/18/why-inflation-easing-too-late-many-consumers/10904250002/

Donovan Larsen

Donovan is a columnist and associate editor at the Dark News. He has written on everything from the politics to diversity issues in the workplace.

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