Consumer Behavior And Economic Trends

I’ve been headhunting in the CPG industry for the past decade, and I’ve never seen a post-inflation market like we’re in right now. For the past three years, customers have been capitulating to price hikes by extending their budgets. But now, they’re at a breaking point. American families, already tethering on edges of their budgets, do not have the ability or the desire to expand their budget in order to accommodate increased prices. I’m sure you’d agree with this, because my family certainly does. With grocery bills through the roof, we’d rather skip on groceries and essentials rather than paying a premium right now. A couple things led us here, starting the pandemic and the post-pandemic impact on spending and savings. Secondly, the wave of AI and tech developments that caught us off guard. So, where do the companies go now? Once the “price increase” playbook is done, CPG brands can only win in both value and volume by shifting gears. In my chats with executives, I’m sensing a change in tone. To stay competitive, they’re looking for ways to shift from the post-pandemic survival mindset to a growth-focused one that accommodates the customer as well. Rather than hiking prices, the focus is now on bringing down costs, and getting to terms with consumer’s limited budgets and increasing product choices. Layoffs aren’t the only way to bring down costs. In my view, CPG companies do have the leeway to embrace data-driven innovation and efficiency to cut costs. Here are some of the ways in which companies can use AI and ML to achieve targets in 2025 and beyond: 1/ Predicting the demand: Post-pandemic behavior is tough to predict, especially in CPG markets. With AI, the companies can now leverage real-time insights from sources like point-of-sale systems, social media, and even economic indicators to see future trends more clearly. PepsiCo, uses Tastewise to track what consumers are eating across 60+ million touchpoints and making decisions that align with local preference. 2/ Inventory management: With AI-powered predictive analytics, companies are now turning inventory management into a science. Procter & Gamble’s Supply Chain 3.0 initiative is one example of this shift. 3/ Increased personalization: Leaders are tapping into geographical intelligence to connect meaningfully with audiences. Estée Lauder has a voice-enabled makeup assistant for visually impaired customers, reaching a new market while boosting brand loyalty. Bottom line is: customers are no longer meeting brands where they’re at. It’s high time that companies start caring about customers and their shrinking bottom lines. Are you excited to see your grocery bill go down in the next few months? #CPG #AI #ML #fmcg #marketing #trending

We asked 25,000 Americans what they think happens when the Fed raises rates. Two-thirds said inflation goes up. In a new paper with Francesco Grigoli, Damiano Sandri, and Yuriy Gorodnichenko, we use randomized information experiments to trace how households' beliefs about monetary policy translate into their own spending and portfolio decisions. In households' minds, tighter policy still reduces consumption. But not through real interest rates or income, which is what most models assume. It works because households expect rate hikes to raise their cost of living, and they pull back spending to build a buffer. As the figure below shows, this expected inflation channel is bigger than borrowing rates, savings rates, wages, and unemployment combined. This is a partial-equilibrium story about how households perceive monetary policy and respond accordingly, not the full GE effect. But the striking finding is that inflation expectations appear to be a key driver of how households respond to monetary policy changes. Post on Empirical Macroeconomics Policy Center of Texas (EMPCT) is here: https://lnkd.in/eZp3ey4j

Strong demand and a surge in gasoline prices pushed retail sales above estimates. That was an undeniably strong retail sales report by any measure. Overall retail sales rose 1.7% in March, following a revised 0.7% gain in February — the biggest monthly increase in a year. Twelve of thirteen categories rose, the most in months. Even as consumers had to spend more at the pump, spending on other items not only increased, but rose at a faster pace than expected. Excluding gas stations, sales still rose a firm 0.6%. Control-group sales — which feed directly into the GDP calculation — were up 0.7%, the strongest reading since August. There are two tailwinds that we think contributed to such a big upside surprise: 🔹Hiring was particularly strong in March following an unusually cold February, which should boost overall income and, in turn, spending. 🔹Larger tax refunds this year due to the new tax bill should have been a massive help for consumers, especially those living paycheck to paycheck. However, there are also reasons to stay alert that this spike in retail spending might be temporary: 🔻It is possible that, facing rising prices due to the war in Iran—which has pushed inflation expectations higher—consumers pulled forward their spending in March, no matter how high gasoline prices were. This shift in behavior has happened recently during the tariff saga, and we can't ignore it. 🔻Demand destruction, especially in goods like automobiles, often shows up with a lag. It could take two to three months to see the impact of the war, with the peak not occurring until at least a quarter later. Obviously, the positive news of a potential ceasefire or reopening of the Strait has helped lower energy prices significantly. However, they remain much higher than before the war. Because of these factors, while we think the economy can withstand this shock, we do not expect consumers to stay this strong for at least one quarter. Beyond that, if the impact of the war continues to fade, there will be more reasons to expect consumer spending to trend upward. For now, the new data on March's retail sales should add to GDP in the first quarter. Our current forecast of 2.2% quarterly growth looks much better now.

Prices that had cooled are regaining momentum... 📈 Retail Sales jumped: Retail sales rose 0.7% in November, with vehicle sales and parts rising 2.6%, the largest increase since July, driven by hurricane replacements and tariff concerns. 💸Consumer Sentiment: The University of Michigan's survey shows consumers are rushing to buy big-ticket items ahead of expected price hikes, likely due to tariffs. 💪Core Retail Sales Rebounding: Core retail sales, which directly impact real GDP growth, rebounded by 0.4% in November after a slight contraction in October. Despite the revision, consumer spending remained robust. 🍽️ Decline in Restaurant Spending: Spending at restaurants dropped 0.4% in November, the largest decline since February 2023. The drop was even more significant after adjusting for inflation, reflecting margin compression due to high labor and food costs. 🛒 Impact of Bird Flu: Grocery store spending declined for the second consecutive month, the bird flu has wreaked havoc on poultry and egg prices in recent months. Additionally, we are beginning to see the effect of diabetes drugs which are shifting eating behaviors. The #consumer continues to drive economic gains, but the shifts in spending patterns are creating challenges for the Fed. Prices that had cooled are regaining momentum, especially in the goods sector. The #Fed is expected to cut rates tomorrow but with hesitation.  

Inflation nears Fed's target. Consumer spending remains robust. Consumer inflation continued to decline in September, according to today's report on Personal Income and Outlays from the US Bureau of Economic Analysis. At 2.1%, the index favored by the Federal Reserve is now essentially at the long-run 2% target. But September's moderation reflected in part a drop in energy prices. Core inflation excluding food and energy rose 2.7% over the past twelve months. It has been hovering in this range for the past half-year, held up by persistent inflation in shelter costs and a pause in disinflation progress for other non-energy services. Goods prices, in comparison, have fallen in four of the past five months. Core inflation will have to trend lower for the Fed to maintain inflation at the 2% level over time. Consumer spending continued a robust pace in September, rising 0.4% on the month in real (inflation adjusted) terms. Real spending is 3.1% higher than a year ago, up from 2.1% in February. Areas making the biggest contributions to spending growth in September included nondurable goods, foods services, and motor vehicles and parts. The exceptional resilience of consumer spending is due in part to growth in inflation adjusted disposable (after-tax) real personal income over the past year, which was 3.1% higher than in September 2023. Income growth was slight in September. Spending has accelerated a bit relative to income over recent months, so that the savings rate trended down to 4.6% in September. This is not particularly low by historical standards, but it does suggest that consumer spending is likely to be more restrained in coming months. This is a good report from the standpoint of economic growth, confirming that consumers continue to feel comfortable spending, even in the face of softening labor market conditions and higher short-term financing costs. Consumer growth should slow, but not pull back sharply. With interest rates set to ease further, there really isn't anything on the horizon (save disruptions in the election aftermath) that is likely to derail the expansion. Of course those disruptions could be substantial. From the standpoint of interest rate policy, this report is just so-so. As I noted above, the 2.1% year-over-year headline PCE inflation is right in line with the Fed's long-term goals, but the persistence of the core measure will give them pause. Still, given the Fed's expressed desire to head off an employment downturn, further interest rate reductions are needed. I expect them to deliver another quarter point cut in November; a pause in rate cuts is possible in December. Tomorrow we get labor market data for October. Look for signs of relative labor market strength here as well, with at most marginal softening from September. Unfortunately, strikes and hurricanes during the month may make this one hard to read. #PCE #consumerspending #inflation #economicgrowth

Consumers Pull Back Spending as Core Inflation Creeps Up May’s PCE report just landed with a thud! At a time when the Federal Reserve is looking for disinflation momentum, the data showed the opposite: inflation remains stubborn, and consumers are beginning to retreat. Core PCE (the Fed’s preferred inflation gauge) rose 0.2% month over month, hotter than expected. Year-over-year, it ticked up to 2.7%, moving further from the Fed’s 2% target. Headline inflation held steady at 2.3%, but there’s little indication of downward momentum. The bigger story, however, may be the consumer slowdown. Personal income fell 0.4% in May. Disposable income dropped 0.6%. Real consumption declined 0.3%, marking the sharpest monthly pullback since last fall. Households spent less on goods (down $49 billion overall) with only a modest offset from a $20 billion rise in services spending. One of the most striking declines came in motor vehicles and parts, which plunged more than $40 billion in a single month. This data comes from the Bureau of Economic Analysis as part of its monthly Personal Income and Outlays report. The PCE (short for Personal Consumption Expenditures) is not to be confused with CPI or PCI. It is chain-weighted to reflect how consumers shift behavior in response to price changes and is favored by the Federal Reserve for that very reason. It captures not just what things cost, but what people actually do in response. For the Fed, this report complicates the path forward. Inflation is not coming down quickly enough to justify immediate rate cuts, yet the economic engine powered by household consumption is showing signs of wear. The drop in income was driven in part by reduced government transfer payments (especially lower Social Security payouts) but the underlying tone of the data suggests softness beyond that. Private-sector wages still rose 0.4% for a second straight month, which implies the capacity to spend is there. The pullback, then, appears more behavioral than circumstantial: consumers are choosing to hold back. That shift will ripple through supply chains, retail inventories, and pricing dynamics in the months ahead. There’s an old idea that consumers can spend their way out of a slowdown. But in May, they didn’t. With inflation still elevated and household budgets under pressure, the Fed may have no choice but to keep rates steady into the fall. The longer that inflation stays sticky while consumption slips, the more complex the policy tradeoffs become. At Havas Edge, we track PCE not just because understanding what people earn, how they spend, and where they pull back gives us advance warning of demand shifts, pricing sensitivity, and message receptivity. #PCE #fedinflation #useconomy

Retail sales look steady. But is that the whole picture? Core retail spending grew 3.2% in 2025 – broadly in line with the long-term average. But under the calm surface, less visible currents are at play – and these are what produce today’s choppier trading environment. One is that retail sales growth includes inflation, which flatters the numbers. Strip that out and last year’s core retail growth reduces to just 0.4% in volume terms. Another factor is the source of growth. Last year, only higher-income consumers contributed to volume growth. Lower-income and middle-income consumers bought less. The downswings were not dramatic, but they compound reductions from prior years. These trends help explain many retail dynamics – polarization, the squeeze of the middle, the zero-sum growth game, extensive discounting, margin squeeze, and so on. Retail is not in a terrible state, and it certainly hasn’t collapsed. But the organic growth available is thinner than ever. That makes retail competitive and it brutally separates winners from losers. #retail #retailnews #economy #consumers #spending

Chanel doubled their bag prices in 7 years and just lost ₹11,000 crores crores in profits. Even the most exclusive brands have limits when it comes to pricing. CHANEL's classic bag went from ₹4.4 lakhs in 2017 to ₹9 lakhs in 2024 (Business of Fashion, PurseBlog). During COVID alone, they raised prices by 76% in just three years (Bloomberg). This led to their revenue dropping 4.3% and profits fell 30% in 2024 with (Chanel 2024 Annual Report): ➜ China, their biggest market, saw sales fall 7.1% (Chanel Earnings Call, 2024) ➜ American customers started walking away (WSJ, June 2024) After working in retail for over two decades, I've watched this revenue drop happen a lot across markets: → Aggressive price hikes during good times  → Customer fatigue sets in gradually → Sales drop when economic pressure hits  → Brands scramble to adjust strategy The interesting part is timing. Chanel paused their usual March price increase this year, as they're waiting to see how US tariffs play out before making moves (Reuters, Feb 2024). The US has imposed 20% duties on EU imports and 31% on Swiss goods, directly hitting luxury brands like Chanel (USTR, Jan 2024). These tariffs add significant costs that brands must either absorb or pass to customers Price increases work when they match value delivery. But when prices climb faster than customers can justify the purchase, even loyal buyers start questioning. The sourcing world sees this clearly. When luxury brands overprice, production orders slow down. Factories in:  📍 India  📍 Bangladesh  📍 Vietnam Feel the impact months before the financial reports come out. In the past, during COVID-19, brands cancelled $3.7 billion worth of orders from Bangladesh factories, with Primark alone cancelling over $300 million (BGMEA, Clean Clothes Campaign). Every brand has a pricing ceiling, even ones with century-old legacies and billionaire customers. Have you ever stopped buying a favorite brand because of the price? #luxury #pricing #business #retail

Wages and benefits are up, inflation and interest rates are down, and real incomes have been rising in the UK for almost 18 months now... But consumers aren't spending, and PwC UK's latest survey finds the *biggest quarterly decline* in consumer sentiment in over 2 years. Is the UK in a "#vibecession" like our US brethren seem to be? Some of my thoughts below, or read the full report: https://pwc.to/48mI0rA First of all, why does it matter? I've been running PwC UK's consumer sentiment survey since 2008, and the main index number has historically been a reliable predictor of actual household spending 6-12 months later (with an R-squared of +0.7 for you statisticians!). Sentiment has been recovering steadily since a low in Sep 2022... until now. In fact, as with previous changes of government, July's survey, taken directly after the General Election, saw #consumersentiment climb to its strongest level in 3 years. However, our latest September survey (https://pwc.to/48mI0rA) shows the biggest quarterly decline since the start of the Ukraine War, worse than after the Truss mini-budget of 2022. The new government's honeymoon is most definitely over in the eyes of consumers. The biggest decline in sentiment in the last quarter was amongst over 65s. For the first time in over 8 years, #pensioners are now the most pessimistic demographic group, reversing over a decade of improving sentiment amongst older people. The end of the universal Winter Fuel Allowance has had a *direct impact* on the sentiment of retirees. Meanwhile, the sentiment of under 35s actually rose - slightly - but no more than it normally does every September. Weak sentiment has been reflected in #consumerspending. According to the BRC, quarterly non-food retail sales have been in decline every month for over a year now. As MPC member Megan Greene pointed out in her Financial Times column earlier this week (https://lnkd.in/dUQA_3HF), UK consumption is just 1.5% above pre-pandemic levels vs 13% in the US. UK consumers are saving, but not spending. This fall in sentiment and continued aversion to spending is bad news for #retail and #hospitality as we enter their Golden Quarter. Christmas spending propensity amongst consumers has fallen since the summer, and is now no better than it was last year - 27% of us think we'll spend less this Christmas, compared with only 18% saying they'll spend more. Will the improving macro environment and more certainty after the Budget be enough to turn the tide? Whatever the Chancellor unveils next week, consumer sentiment looks to have peaked, and is now falling again. For retail and leisure operators, that means the critical run-up to #Christmas hangs in the balance. Where will the brighter spots of higher spending be? Read our prognosis in PwC UK's latest consumer sentiment report here: https://pwc.to/48mI0rA

LVMH just posted its Q1 2025 results. I'm sharing the most important takeaways as it looks like a warning shot for the global luxury industry ⚠️ The world's largest luxury group's organic revenue declined by -3%, missing analysts expectations. Fashion & leather goods sales (= nearly half of the group's revenue) dropped -5%, its worst quarterly performance in years. As the first major luxury player to report in this earnings season, LVMH's results are not just about one company. They might reflect broader tensions in the global luxury market. What's behind the miss? 🇨🇳 Bearish recovery in China Hopes for a strong post-COVID rebound in China are fading. Demand is stabilizing but not growing in mainland China & SK. This year, Japan sales fell -1% and Asia ex-Japan dropped -11% 🇺🇸 US demand softens Although fashion & jewelry held up in the US, the group pointed to declines in beauty & wines/spirits, reflecting pressures on the aspirational customers. Rising geo-pol tensions & recent US tariff announcements didn't help either. US sales fell -3%. 🥃 Wines & spirits collapse (-9%) Cognac sales were hit especially hard with weakening demand in both China & the USA. This category is particularly exposed to the rising cost of living and consumers cutting down on 'nice to haves'. 💃 Fashion loses momentum Dior, typically a growth engine, underperformed. Creative transitions (Kim Jones' exit, no official successor named yet) and brand fatigue likely contributed. LV outperformed the division average but not enough to offset the rest (= a canary in the coalmine) 📉 No bright spots Every LVMH division either declined or stayed flat: • Selective retailing (Sephora, DFC): -1% • Perfumes & cosmetics: -1% • Watches & jewelry: 0% • Europe was the only region to show growth: 2% It's clear that the "supercycle" is over. From 2021-23, luxury brands saw insane growth fueled by revenge spending and stimulus-driven consumer confidence. We're now entering a period of "normalization" and for some brands "contraction". Entry-level, aspirational luxury buyers are pulling back, especially in beauty, spirits and small leather goods = a normal first sign in economic uncertainty. In a slower market, storytelling is even more important than before. The ongoing creative transitions (not only the case at LVMH) are NOT going to help .. especially now that we're entering a new level of uncertainty with the tariffs & geopolitical tensions on the front pages. The above said, LVMH remains financially robust and is maintaining long-term investment in product, experiences and retail (especially in Asia). Discipline is increasing but NOT at the expense of future brand equity, something I expect to see at more luxury conglomerates the coming quarters. LVMH's miss is not a one-off. The entire sector will need to navigate the next few Q's carefully. All eyes now turn to Hermès, Kering & Prada 👀