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Discounting is back in fashion, as Americans get tired of paying more Consumer
spending rose only slightly in April, as shoppers pushed back against rising
prices.


BUSINESS


DISCOUNTING IS BACK IN FASHION, AS AMERICANS GET TIRED OF PAYING MORE

June 1, 20248:00 AM ET

Scott Horsley

Dollar General is attracting new customers, as inflation-weary shoppers hunt for
bargains. Many of the discount chain's core customers are checking out with
fewer items in their baskets. Scott Olson/Getty Images hide caption

toggle caption
Scott Olson/Getty Images

After two years of paying more for things, Americans are growing more cautious
about how they spend their money and are forcing retailers to offer more
discounts.

Target and Walmart are rolling back prices on grocery items and McDonald’s is
introducing a $5 meal.

And stores like Dollar General, which specialize in discounted items, are
attracting more cost-conscious customers.

“It’s a cautious consumer,” said CEO Todd Vasos, describing Dollar General's
typical shopper. “She is definitely making tradeoffs in the store and at the
shelf."

Dollar General reported better-than-expected profits when it released its most
recent quarterly results on Thursday. The discount chain says it’s attracting
more middle- and upper-income shoppers, looking for bargains. But Dollar
General's lower-income shoppers are often checking out with fewer items in their
baskets.

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FINANCIAL STRAIN IS REAL

Broader data are showing that people are feeling the strain. Retailers say
customers are pushing back against additional price increases, according to
the Federal Reserve's latest “Beige Book,” which collects anecdotal information
from businesses around the country.

Walmart said it cut prices on nearly 7,000 items while Target slashed prices on
1,500 items with plans to cut another 3,500 throughout the summer.

That newfound caution among consumers marks a change from last year, when robust
spending kept the economy growing rapidly, even as people told pollsters they
were gloomy about the outlook. Revised figures released this week show the
economy grew at an annual rate of just 1.3% in the first three months of the
year, not 1.6% as originally reported. The downward revision was primarily the
result of lower consumer spending.

The slowdown continued in April, according to a report from the Commerce
Department Friday, which showed consumer spending on goods fell 0.2% during the
month.


SPENDING ON SERVICES INCREASING

People continue to spend more, however, on services – things like haircuts and
tickets to sporting events. Spending on services grew rapidly in the first three
months of the year and continued to expand in April, albeit at a slower pace.

The rising price of services has kept inflation stubbornly high, even as the
price of many goods has begun to fall.



Consumer prices in April were up 2.7% from a year ago, according to the Commerce
Department’s inflation yardstick, which is closely watched by the Federal
Reserve. While that’s down from last year, it remains well above the Fed’s
inflation target, which is 2%.

“As long as demand remains as robust as it is in the service sector, it’s going
to be hard for the Fed to deliver on those expected rate cuts,” said Tim
Quinlan, an economist at Wells Fargo.

The central bank has said it wants to be confident that prices are under control
before it starts cutting interest rates. Rates are expected to remain stable
through the summer, while investors put the odds of a September rate cut at just
over 50%.


INCOME OUTPACING SPENDING

Personal income rose slightly faster than spending in April – a welcome
turnaround after spending outpaced income growth in six of the seven previous
months.

When spending grows faster than income, shoppers are forced to draw down savings
or use their credit cards to make up the difference. Credit card balances grew
to $1.11 trillion in the first quarter of the year, and nearly one out of five
card holders are at or near their credit limit.

“I know it’s sort of the default setting for an economist to cheer it on and
root for strong consumer spending, but I sometimes feel like it might be in
people’s best interest to dial it back a bit,” Quinlan said.

 * inflation
 * consumer spending
 * consumers
 * Federal Reserve
 * Consumer confidence
 * consumer sentiment

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