It will be an incredibly expensive Christmas. Buyers don’t care


That means 2021 will be one of the most expensive holiday shopping seasons of all time. But buyers are still not holding back. Businesses believe that you will continue to pay higher prices, especially during the holidays.
They better be right: If consumers take a shock and decide to cut spending, the US economy could be in big trouble.
Despite a global supply chain crisis, a resurgence of Covid cases and high inflation, the U.S. economy remains in fairly decent shape. Consumers aren’t spending as much as they did in the spring, when they still had loads of money to spend thanks to their stimulus checks, but they continue to open their wallets, even for a few smaller purchases.

Consumer spending rose 0.6% in September after increasing 1% in August, the Bureau of Economic Analysis reported on Friday. But the report comes with a few red flags: Major purchases of durable goods (like cars and appliances) fell 0.2%, while spending on other non-durable items rose 0%. , 9%, mainly because the prices of food and gasoline are on the rise.

This suggests that consumers are willing to keep spending, even if prices rise. But they might withhold some more expensive items.

The good news is that the Delta variant appears to be on the decline, at least for now. Consumers could start venturing again towards the end of the year if the trend continues. And automakers are reporting some easing of the supply chain crisis that has seriously reduced inventory – which could help car prices drop a bit and lead to strong year-end buying, perhaps. be luxury cars with bows on the top for holiday gifts.

If we are in for a memorable December, consumers will have to continue to face higher prices.

A merry Christmas for stores

Economists and chain stores believe consumers will continue to spend during the holidays. With higher wages and plenty of jobs to fill, Americans have money to spend this Christmas, even though the prices are higher.

“As the Delta wave recedes, consumer spending increases, with the latest data showing an increase in hotel occupancy and restaurant visits,” said Sal Guatieri, BMO Senior Economist.

People are going back to work and wages keep rising with inflation. They have also racked up savings during the pandemic, which will give shoppers and stores a positive wind ahead of the holidays, according to Guatieri.

“Holiday sales appear to be very strong this year … if stores can find enough workers to deliver them,” he said.

Christmas is going to be great for stores, whether their names are Walmart or Target

Retail sales in November and December are expected to increase between 8.5% and 10.5% this year from the 2020 holiday season, to a record $ 859 billion, the National Retail Federation said on Wednesday, a trade group for retailers. The figure excludes car dealerships, gas stations and restaurants.

“All we hear from consumers we talk to regularly is that they are excited about the holiday season,” Target CEO Brian Cornell said in an interview with Yahoo Finance Monday. “We certainly expect to see a very strong and robust holiday season.”
However, supply chain challenges remain a huge factor that could derail the holiday season. Even Amazon and Apple are grappling with the tightening global supply chain.

Both companies on Thursday reported lower than expected earnings results from Wall Street analysts and warned that supply chain issues could weigh on business in the December quarter.

Shipping delays mean that these scales of supply and demand will continue to be out of balance. As your Econ 101 teacher told you, that means prices will continue to rise until the end of the year.

Higher prices “well received by customers”

Yet companies are also convinced that, with tight supply and burning demand, they have pricing power on customers and can pass the rising costs they face on to customers.

“Consumers pay higher prices because the opportunities to buy other products are limited,” said Gus Faucher, chief economist at PNC. “If your dishwasher breaks down and you need a new one, and dishwashers are scarce, you’re willing to pay extra. Ditto for household products like cleaners, toothpaste or toys. This allows companies to raise prices. “

Procter & Gamble (PG), Whirlpool (RTH), Coca Cola (KO), Mcdonalds (MCD) and Albertsons have said in recent days that customers aren’t changing their buying habits, even as prices go up. They believe consumers are in good financial health and can afford to pay higher prices without too much resistance.

“We haven’t seen any significant change in customer behavior. And I think that is a testament to the strength of the customer,” Albertsons CEO Vivek Sankaran said on a conference call earlier this month. -this. “We don’t see their intention changing drastically over the next few weeks and months.”

These toiletries could soon be more expensive
McDonald’s recently increased menu prices by 6%, and the chain’s chief financial officer, Kevin Ozan, said on a earnings conference call Wednesday that the increase “has been fairly well received by customers.”
But there are dangers to businesses and the economy in general if prices rise too much, as some customers may punish them by switching to cheaper products or cutting back on spending. Brands can also suffer if they are wrong about prices. In 2019, when Clorox (CLX) Raised the prices of Glad trash bags, retailers revolted and reduced space for Glad on the shelves, reducing sales.

“If inflation persists at a high level and is stronger than wage growth, it would encourage consumers to be more careful with their spending,” PNC’s Faucher said. “They have to eat less in restaurants and go to the movies less. Instead of buying steak, they’re going to buy ground beef.”

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