Midway through 2023, consumers may be less concerned about inflation than a year ago when inflation peaked at 9.1% – the highest rate since November 1981 – and a recession seemed inevitable.
In June of this year, the annual inflation rate was 3%, the lowest since March of 2021, down from 4% in May. The latest Consumer Price Index report marked 12 consecutive months of year-over-year inflation declining.
Overall, Americans are feeling better about their personal finance situations and about the health of the U.S. economy at large. According to McKinsey’s most recent U.S. Consumer Pulse Survey, 36% of respondents felt optimistic about economic conditions and 22% felt pessimistic. That’s compared to June of 2022 when 26% of respondents cited optimism and 30% cited pessimism.
But despite growing confidence among shoppers, the amount of money they’re spending has lagged. In May, consumers spent only 0.1% more than they did in April. That was down from a 0.6% uptick in spending from March to April, according to the Bureau of Economic Analysis. Further, as highlighted by the Federal Reserve Bank of Chicago’s Beige Book released last month, spending has continued to “shift toward essential items and away from discretionary ones, and for many products, consumers continued to trade down in quality or convenience.”
“There’s still caution. We’re not to pre-pandemic levels of spending by any means, but it’s improving,” said Angie Belz, Ph.D., associate professor of business at Concordia University Wisconsin.
Belz highlighted a lingering trend of consumers spending more time researching products before making a purchase – and not just for big-ticket items like cars and boats.
“People are starting to do more research on mid-to-lower priced items as well, comparing things like subscriptions and streaming services,” she said. “There’s less of that impulse to jump in for (purchases), what they’re looking for is: what is my overall value?”
Referencing a recent HubSpot consumer trends report finding that 56% of consumers use mobile phones more than any other device when researching purchases via search engine, Belz urges businesses to make sure their websites and digital ads are mobile friendly and targeted.
“It might be worth paying for those google ad words, and it’s still important to be on that first Google search page,” she said.
Product bundling has emerged as an increasingly popular marketing strategy in response to consumers’ quest for value in a volatile economy. Take Disney Plus, for instance, which allows subscribers to add on ESPN Plus and Hulu for a discounted total. Another sales tool retailers, including Amazon, Target and Walmart, are leaning into as shoppers look to stretch their dollar – and avoid credit card debt – are ‘buy now, pay later’ plans or layaway, which allows shoppers to make a down payment and reserve an item until they have paid the remainder of the price in installments.
“It’s really a consumer response to not being as willing to put it on a credit card because of that uncertainty,” said Belz.
Something consumers are not as likely to skimp on, however, is leisure and hospitality purchases, according to the Chicago Fed’s Beige Book.
“There’s still a strong desire to get out of the house for experiences,” said Chad Paris, chief financial officer at Milwaukee-based Marcus Corp., which operates hotels, restaurants and movie theaters in multiple states. “Whether it’s travel, dining or going out for entertainment, including going to the movies, people want to go out and do things and we’re not really seeing any softening in that.”
On the hotels and resorts side of the business, weekly industry data in early July showed “excitement about leisure travel remains at a record high,” Paris said, also noting there are indications among some segments of gradual slowdown from a period of so-called “catch-up travel,” particularly for lower-income customers who are beginning to pull back on the number of trips they’re booking.
On the theater side of the business, demand for seeing movies on the big screen also remains strong, with no signs of slowing, especially given this year’s slate of releases, Paris said, pointing to the value of the cinema experience in comparison to other leisure activities.
“When you think about the relative cost of going to the movies, compared to sporting events or concerts or other live entertainment, it’s a very affordable night out,” said Paris. “Historically, in past recessions, the consumer has actually traded down from other more expensive forms of entertainment to moviegoing as a cheaper alternative.”
History may be on its side but that doesn’t mean the company can rely solely on the past to understand the ever-changing expectations of today’s consumer – or to make decisions that make sense in a post-pandemic business climate.
Earlier this year, Marcus Theatres upped the cost of its popular “$5 Tuesday” promotion as it grappled with inflationary pressure. Now known as “Value Tuesdays,” admission is $6 for members of the chain’s rewards program and $7 for non-members. The new discount program was tested in three different versions, in three different markets before it was finalized and rolled out company-wide. Paris said product testing is an important piece of how the company stays engaged with customers and finds what works for the bottom line.
“We try to be nimble and creative in creating different offerings that our customers want, and as we see changes in consumer preferences or the general economic environment, we adjust quickly,” he said.
