Changes in Consumer Purchasing Power Since the Pandemic

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

A Dramatic Drop in Consumer Credit Signals a Shift in U.S. Spending Behavior In a week packed with volatility from tariffs, inflation concerns, interest rate speculation, and stock market turbulence, one quiet signal may be the most important of all: consumer credit shrank in February, the first contraction since the height of the pandemic in April 2020. The latest data from the Federal Reserve shows that total consumer borrowing fell by $810 million, compared to expectations for a $15 billion increase. That’s not just a miss. It’s a reversal. A hard turn away from expansion. It tells us that consumers, facing uncertainty on multiple fronts, are pulling back. What makes this especially noteworthy is that both key components of consumer credit weakened. Revolving credit (primarily credit card usage) was flat, rising just 0.1%. Non-revolving credit, which includes auto and student loans, fell by 0.3%, the first drop in almost a year. In a consumer-driven economy like the U.S., that kind of across-the-board hesitation doesn’t happen without a shift in sentiment. Consumers were already facing high borrowing costs and elevated prices before the recent escalation in trade tensions. Credit card interest rates remain near historic highs, averaging over 21%. And subprime auto delinquencies have climbed to levels not seen since 1994. Even among higher-income households, the sharp stock market pullback and renewed recession talk may be leading to more guarded financial behavior. This shift isn’t just financial. It’s psychological. When consumers start avoiding credit, they’re not just tightening budgets - they’re signaling doubt about the future. Confidence is fragile. Spending slows. And businesses that rely on financed purchases from home improvement to health services to durable goods will feel the impact first. The implications are broad. Retailers may see softer conversion, even if traffic holds. Brands that rely on promotional financing may find it harder to close sales. Decision cycles lengthen. Price sensitivity intensifies. Even categories insulated from economic shocks can find themselves pulled into a more value-driven mindset. This is how slowdowns begin—not all at once, but in signs like these. For the Federal Reserve, this creates a challenge. Inflation remains elevated. But with the consumer retreating, the credit environment tightening, and uncertainty rising, the central bank’s path forward becomes more complicated. At Havas Edge, we’re watching this closely. Because in direct response marketing, data like this is directional. It tells us not where the economy is, but where the consumer mindset is going. #ConsumerCredit #EconomicSignals #ConsumerBehavior

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

"Since the pandemic, buyers on auto-dealer lots have encountered surging sticker prices and smaller incentives from automakers to lessen the blow. To afford an automobile, more consumers, especially lower-income families, have resorted to buying used cars and taking out longer loans. Now, more are falling behind on their loans, signaling that lower-income consumers are struggling to afford payments as wages stagnate and unemployment ticks higher. While the economy has remained strong, and Wall Street has kept buying subprime auto loans, the auto market is evidence that not all is well under the hood. The percentage of new-car buyers with credit scores below 650 was nearly 14% in September, roughly one in seven people, J.D. Power said last month. That is the highest for the comparable period since 2016. And the portion of subprime auto loans that are 60 days or more overdue on their payments hit a record of more than 6% this year, according to Fitch Ratings, while delinquency rates for other borrowers have remained relatively steady." https://lnkd.in/eSbFaJaU

US consumers got a USD 600 billion tailwind from locked-in #mortgages. We estimate the gap between existing and market rates for US mortgages has provided consumers with an extra USD 600 billion since early 2022 (up to 2% of disposable income). This has undermined the monetary #policy transmission mechanism and helps explain why US consumer spending has remained resilient to monetary tightening. The flip side of this means that locked-in mortgage rates may similarly limit the effectiveness of monetary policy easing, adding to the list of downside risks to growth and also to maintain #affordability pressures. For example, year-on-year house price growth has moderated to below 6%, but prices remain 60% above 2020 levels.   During the recent Federal Reserve monetary policy tightening cycle, market rates for US mortgages exceeded the average rate borrowers paid on existing mortgages by as much as 3.2 percentage points. Such a gap has significant economic implications: it lowers monetary policy effectiveness by supporting consumer resilience during hiking cycles and reduces the stimulus effect when rates ease. The structure of the US mortgage market causes this effect. Over 95% of US home loans are 15- or 30-year fixed-rate mortgages. By the end of 2Q24, the market rate for mortgages was roughly 7%, compared to an average existing mortgage interest rate of about 4%. We reviewed this gap for the two years through 2Q24 and estimate that homeowners with fixed-rate mortgages amassed over USD 600 billion in "savings" from their mortgages in the post pandemic expansion, amounting to nearly 2% of personal consumption spending. This helps explain why recent policy tightening did not, initially, appear to slow the economy.   We expect limited stimulus for consumer spending from the monetary policy easing cycle, expected to start in September, due to this low interest rate sensitivity of private consumption. With spending tailwinds fading though and equity markets priced to perfection, the downside risks to growth have risen, threatening a sharper easing cycle over the next year than our baseline currently assumes. https://lnkd.in/eTXtwBjC James Finucane, Mahir Rasheed, Jessica Oliveira Lee  

The Consumer Isn’t Cracking—But It’s Clearly Strained Savings are gone. Credit cards are maxing out. Sentiment is softening. It’s easy to point to low unemployment and claim the U.S. consumer is fine. But dig a little deeper, and the picture gets murkier. The financial cushion built up during the pandemic is gone. Delinquency rates on revolving credit—particularly cards—are rising. And consumer sentiment has taken another leg down, especially among lower- and middle-income households. Add to that the pressure of sticky inflation in essentials like rent and services, and we’re not just looking at fatigue—we’re looking at the early signs of constraint. This matters because consumption is still 70% of U.S. GDP. If the consumer stalls, so does growth. From an investment standpoint, this shifts my attention toward: Companies with pricing power and loyal customer bases. Sub-sectors in consumer discretionary that can hold up under tighter wallets. Defensive assets with lower exposure to demand volatility. It’s not a crisis. But it is a caution flag. And in this cycle, early caution has consistently paid off. #CIOperspective https://lnkd.in/eE72jwdj Tathagata Bhar Anuragh Balajee Dhrumil Talati

Nestle reported earnings last week and lowered guidance for the current year. New CEO Laurent Freixe said, “we expect the demand environment to remain soft.” If you are in the food business and thinking the environment has been soft longer than you expected, I have a theory about when that might change.  Several years ago, I did some work looking at the underlying drivers of growth in the food industry. I have written about it before but if you haven’t read that post, here’s the headline: the food industry grows at the rate of population growth plus a percentage of income growth below 100%. This is true globally in every market I studied.   The reason the income growth contributor is less than 100% is because for the last 100 years+, people have spent a steadily declining share of their household income on food.  The only breaks in this trend have been due to war, hyper-inflation or other significant economic disruption. Looking at the United States, food as a percent of income dropped from about 40% in the early 20th century to about 10% in the early 21st century.  It dipped below 10% around 2012 when I did my research and stayed around 10% until the pandemic. During the pandemic, food as a percent of income dropped to an all-time low of 8.5%, driven by the inability to eat out.  In 2022, it jumped up to over 11% as the pandemic ended and inflation spiked.  It remained above 11% in 2023.  This is the highest it has been since the early 1990s. Food is the third largest household budget item after housing and transportation, but unlike housing and transportation, food is highly substitutable. You can buy expensive food or cheap food, dine out or cook for yourself, and you can change these choices daily.  It is a relatively large budget item and it is a flexible budget item. So here’s my theory: until food as a percent of household income gets back down around 10% or lower, we will continue to see a “soft demand environment”.  Food inflation may have moderated, but the cumulative effects of the last three years are still with us and the impact on household budgets is significant – and although we all need food, consumers have a lot of discretion about how they get their calories. https://lnkd.in/gfMtkafa.

Consumer sentiment surveys near 50-year lows show growing concern over personal finances, and the latest decline has hit high earners, typically the biggest spenders, especially hard. In past downturns, the top 33% of income earners were relatively insulated, but now even this group is reporting sentiment near all-time lows. In mid-2024, high earners' sentiment fell to just 0.8 standard deviations below average, while middle and lower earners fell to 1.5 and 1.8 below. Now, top earners' sentiment has plunged to 2.7 standard deviations below average, with other groups now at around 2.4 below, an ominous sign for spending ahead. Consumers across all income groups believe buying conditions for big-ticket items like cars, homes and durables are near all-time lows -- posing a severe risk to sales and keeping discretionary revenue growth suppressed in 2H. Sentiment about consumers' financial situations over the next year has plummeted to record lows across all income groups, surpassing even 2008 and 2022. Gina Martin Adams Bloomberg Intelligence

Are challenging times coming for #FMCG players? After a period of unprecedented inflation, where most/ all FMCGs benefited from double-digit pricing gains (outpacing the COGS inflation), the pricing gains are drying up, while the volumes keep stagnant/ declining, leaving #CPG players with a rather bleak outlook Most of the FMCG players rely on a strong middle class (additional $100bn income won't make Elon Musk buy more shampoo/ sauce than he does today), and the purchasing power of the bottom 90% of the consumers across the major economies got hit by unprecedented cost of living and assets inflation far outpacing their income growth (>66% of all the wealth 'printed' since 2020 ended up with the top 1%) If so far the price elasticity was low (low to no volume decline) it was driven by several forces that may well be about to expire: - general lag in adjusting consumption patterns (reinforced by a simulataneus price hikes all across the board, which disbaled consumers from switching brands) - accumulated savings from Covid (govt subsidies + lower discretionary spending: travel/ event bans, rent/ mortgage freezes...) that are now deplating (except for late 2022, the saving rate is at the lowest level since 2008) - consumer (mostly credit card) debt supplementing income, that is already getting maxed out (as per FICO: i) first since 2009 decline in avg. Credit Score, ii) rise in missed payments, iii) Consumer debt already higher vs pre-pandemic levels, iv) Slowdown in new credit origination) Maintaining the pre-pandemics consumption will result tricky for many consumers. As such, we may expect strong demand for the entry level and luxury segments, while the mid-tier will face drop in demand (most of consumer goods are not really discretionary, so some mid-tier consumer will switch to Private Labels/ value brands, and 'the rich' got even wealthier so they will not trade down from luxury) The upcoming quarters will bring some important decisions for many Brands willing to defend/ expand their positions, and/ or adjust according to the shifting demand #strategy Frederic Fernandez & Associates

Consumers are feeling better about themselves but don't seem ready to commit to big purchases yet. After a really disappointing set of retail sales numbers this morning there was some good news for May. Headline consumer confidence hit -17 this month – that’s the highest level since Dec. 21, but still well below the pre-pandemic average of -6. As always, though, the headline rate hides some pretty important nuances. Consumers’ confidence in their personal finances over the next 12 months jumped to +7 in May, the strongest since August 2021 and above the pre-pandemic average of +5. This is exactly what we’ve been expecting to see as real incomes grow and it should continue to improve over the next few months as wages continue to outpace inflation. However, consumers are clearly wary about committing to big purchases. The major purchases balance fell to -26 in May from -25 in April. That compares to a pre-pandemic average of about +2. This is probably because most major purchases involve some form of credit and with rate cuts now not looking likely until August most people are still in deleveraging mode. So, what does this mean for spending? As consumers feel better off, they should be willing to save less and spend more. But if they're not interested in big purchases, that extra demand will fall on lower cost goods and services - potentially bad news for things like cars and furniture, but maybe better news for hospitality and smaller retail items. Saxon Moseley Jacqui Baker Alison Ashley #RSMUK #RealEconomy #Confidence