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

You feel it in surveys first. Then you see it in earnings. 📉 Consumer sentiment has been sliding for months. Now it’s showing up in the numbers. PepsiCo just reported a revenue and profit decline, cutting its full-year forecast. Their CFO summed it up bluntly: “Relative to where we were three months ago, we probably aren’t feeling as good about the consumer now.” Translation: : ⚠️ The vibe is off. And it’s not just Pepsi: 🌯 Chipotle posted its first same-store sales drop since 2020. 🧺 Procter & Gamble says Americans are doing less laundry to save on detergent. ✈️ American Airlines and Delta Air Lines pulled full-year guidance, citing volatile travel demand. This isn’t a single company issue - it’s a sentiment shift at scale. From burritos to beverages, laundry loads to leisure travel - the pullback is emotionally driven. Not because wallets are empty, but because confidence is. And that brings me to one of my favorite niche fascinations: The weirdest recession indicators economists have tracked over the years. The ones that don’t show up in government data sets but do show up when your friend says “I’m just rewatching The Office again” and you understand something deeper is happening. 💄 The Lipstick Index: Coined by Estee Lauder's chairman during the early 2000s downturn. When times are tough, consumers skip big luxuries and go for small pick-me-ups, like a $12 lipstick instead of a $1200 handbag. Emotional arbitrage. 🩲 The Men’s Underwear Index: Alan Greenspan said it, not me. The theory goes that men delay underwear purchases when things are bad, because it's invisible and, let’s face it, not a priority. So if sales dip, watch out. 👗 The Hemline Index: A 1920s theory suggesting hemlines rise during economic booms and fall during downturns, supposedly because modesty (and practicality?) take over. 💅 The Mani-Pedi Barometer: Beauty services are often first on the chopping block when money gets tight. If your nail tech has open slots all week, it might be time to rebalance your portfolio. 📺 The Comfort Binge Effect: Streaming platforms like Netflix have noted spikes in rewatching comfort shows (Friends, The Office) during economic downturns. Less experimentation, more regression to the emotional mean. The economy doesn’t break all at once. It frays at the edges - in nail salons, snack aisles, and streaming queues. Anyway, I’m off to rewatch Friends instead of doing my laundry and make sure my hemlines are recession-appropriate.

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  

Consumer spending in India, spurred by a post-pandemic boom, is now losing steam, Ruchi Bhatia and Satviki Sanjay report for Bloomberg News. For instance, Maruti Suzuki now has a stock buildup after facing a slowdown in sales. Air travel and sales of packaged food are also experiencing a slowdown, the report says. Garima Kapoor, an economist at Elara Securities India, believes that Indians have “now completely exhausted" the savings that they had accumulated during the pandemic. Additionally, higher interest rates, restrictions on risky credit cards, and a slowdown in hiring in sectors like technology and retail are a few reasons, she adds. Meanwhile, rural spending is seeing a rebound thanks to a bumper monsoon. Sonal Varma, Chief Economist for India and Asia ex-Japan at Nomura Holdings Inc., says, “We will see a rebalancing within consumption this year, with rural consumption likely to improve due to easing inflation and better monsoons, but urban consumption will likely moderate.” However, businesses are hopeful that consumers will soon increase their spending as the festive season sets in, the report adds. Source: https://lnkd.in/gzzTBDdN ✍: Divya Pathak 📷: Getty Images

Consumer Credit Crossroads: Spending, Saving, or Sitting Out? One year ago, Consumer Products bonds in the US HY Index traded 38bps (OAS) TIGHTER than the US HY Yield Master Index. The Consumer Products sector now trades 132bps WIDER vs. the index (note: both maintain the same B1 rating) or +160bps deterioration in spreads vs. the index. Investors and traders banking on the almighty consumer are feeling the pinch—ouch! The 90-day tariff pause has provided relief to this sector over the past 2 trading days. What comes next is critical. When spreads were tight over the past months, there was little dispersion. Dispersion is critical to judge, as there will be a growing delta between the winners vs. losers over the course of 2025—this will be critically important for investment performance. The elasticity of demand will differentiate the winners vs. losers since increased tariff costs will either be passed through to consumers, or NOT; the result will be important part of the formula that determines operating margins/profits. Wider spreads will present a buying opportunity of select issuers that have a strong moat and essential product selection—however, issuers with non-essential products, narrower margins and more susceptible supply chains will find a more challenging path ahead. In other words, these are the days when your credit investment manager is worth their weight (management fee). Consumer Products high-yield (HY) companies weakened as consumer sentiment declined and inflationary expectations rose; tariffs serve as the equivalent of corporate tax increase. Consumers now expect everyday essentials to become more expensive, leaving less room for discretionary spending, while tightening consumer credit and high financing costs provide limited access to finance big-ticket purchases. The net effect reduces demand for non-essential products. These factors collectively create a challenging environment for some HY companies reliant on robust consumer spending. With credit card APRs at record highs (around 20-25%), delinquency rates are rising for prime and non-prime customers. Consumer product companies will look to cut costs, solidify their supply chains that allow them to remain competitive (i.e., renegotiate supplier contracts) and/or localize production to offset tariff/inflation pressures. Notable names in this sector with meaningful China exposure include Newell Rubbermaid with ~15%, Spectrum Brands with ~45%, and Scott’s with up to 10% of their COGS, respectively. Late yesterday, Moody’s downgraded Newell Rubbermaid one notch (now Ba3 /Negative Watch) noting the company's ability to implement pricing actions to improve margins will be limited given the discretionary nature of most of its products and weaker consumer demand. During times of stress: up in quality, is my recommendation. As dispersion separates winners from losers, credit selection will be critical to performance as correlations remain wide.

Inflation isn’t just an economic challenge—it’s a test of agility for businesses. As costs rise and purchasing power shifts, companies that rely on gut instinct risk falling behind. The real winners? Those who use data-driven insights to navigate uncertainty. 1️⃣ Understanding Consumer Behavior: What’s Changing? Inflation reshapes spending habits. Some consumers trade down to budget-friendly options, while others delay non-essential purchases. Businesses must analyze: 🔹 Spending patterns: Are customers shifting to smaller pack sizes or private labels? 🔹 Channel preferences: Is there a surge in online shopping due to better deals? 🔹 Regional variations: Inflation doesn’t hit all demographics equally—hyperlocal data matters. 📊 Example: A retail chain used real-time sales data to spot a shift toward economy brands, allowing it to adjust promotions and retain price-sensitive customers. 2️⃣ Pricing Trends: Data-Backed Decision-Making Raising prices isn’t the only response to inflation. Smart pricing strategies, backed by AI and analytics, can help businesses optimize margins without losing customers. 🔹 Dynamic pricing models: Adjust prices based on demand, competitor moves, and seasonality. 🔹 Price elasticity analysis: Determine how much a price hike impacts sales before making a move. 🔹 Personalized discounts: Use customer data to offer targeted promotions that drive loyalty. 📈 Example: An e-commerce platform analyzed customer behavior and found that small, frequent discounts led to better retention than infrequent deep discounts. 3️⃣ Demand Forecasting & Inventory Optimization Stocking the right products at the right time is critical in an inflationary market. Predictive analytics can help businesses: 🔹 Anticipate demand surges—especially in essential goods. 🔹 Optimize supply chains to reduce excess inventory and prevent stockouts. 🔹 Reduce waste in perishable categories like F&B, where price-sensitive demand fluctuates. 📦 Example: A leading FMCG brand leveraged AI-driven demand forecasting to prevent overstocking of premium products while ensuring budget-friendly variants were always available. 💡 The Takeaway Inflation isn’t just about rising costs—it’s about shifting consumer priorities. Companies that embrace data-driven decision-making can optimize pricing, fine-tune inventory, and strengthen customer loyalty. 𝑯𝒐𝒘 𝒊𝒔 𝒚𝒐𝒖𝒓 𝒃𝒖𝒔𝒊𝒏𝒆𝒔𝒔 𝒂𝒅𝒂𝒑𝒕𝒊𝒏𝒈 𝒕𝒐 𝒊𝒏𝒇𝒍𝒂𝒕𝒊𝒐𝒏𝒂𝒓𝒚 𝒑𝒓𝒆𝒔𝒔𝒖𝒓𝒆𝒔? 𝑨𝒓𝒆 𝒚𝒐𝒖 𝒖𝒔𝒊𝒏𝒈 𝒅𝒂𝒕𝒂 𝒕𝒐 𝒓𝒆𝒇𝒊𝒏𝒆 𝒚𝒐𝒖𝒓 𝒔𝒕𝒓𝒂𝒕𝒆𝒈𝒚? 𝑳𝒆𝒕’𝒔 𝒅𝒊𝒔𝒄𝒖𝒔𝒔 𝒊𝒏 𝒕𝒉𝒆 𝒄𝒐𝒎𝒎𝒆𝒏𝒕𝒔! #datadrivendecisionmaking #dataanalytics #inflation #inventoryoptimization #demandforecasting #pricingtrends

📊 US consumers increasingly running on fumes 💸 Consumer spending rose a seemingly healthy 0.5% m/m in February, but make no mistake, households are increasingly running on fumes. Adjusted for prices, real spending rose just 0.1%, with the composition of outlays pointing to growing caution. Spending rotated away from tariff-impacted and higher-priced goods, while services outlays remained subdued. 🔍 The details underscore a clear rotation. Inflation-adjusted durable goods spending rose a strong 0.9% m/m following a 1.4% decline in January, but excluding the 4.3% surge in vehicles (after a 4.2% plunge in the prior month), durable goods spending fell 0.4%, with weaker outlays on furniture and recreational goods. Nondurable goods spending declined 0.2% in February, as modest gains in clothing were offset by lower spending on groceries and gas. Real services spending rose just 0.1%. 📉 Personal income fell 0.1% in February, reflecting soft compensation growth, a sharp drop in dividend income and lower government social benefits. Disposable personal income also declined 0.1% m/m, as personal current taxes were unchanged following a 3.1% drop in January tied to larger refunds from the One Big Beautiful Act. Adjusted for inflation, disposable income fell more sharply, down 0.5%. 💳 With spending outpacing income, the personal saving rate dropped 0.5ppt to 4.0% –which, excluding post-pandemic swings, is tied for the lowest level since 2008. 📈 Looking at the broader trend, real consumer spending has firmed to a 2.5% y/y pace, but the income foundation remains fragile. Real disposable income growth has slowed to 1.1% y/y and has trailed spending since July 2024. This highlights that the resilience in spending is being sustained through tighter budgeting and greater selectivity, not stronger income growth. Increasingly, spending is being supported by a drawdown in savings, greater reliance on credit, and wealth effects. These relief valves are inherently limited, particularly heading into an oil shock. With job growth near zero and wage growth easing, one should anticipate soft income for the rest of the year. 🔥 Inflation pressures firmed in February, largely reflecting tariffs. Headline and core PCE prices both rose 0.4% m/m. On a year-over-year basis, headline PCE inflation held at 2.8%, while core inflation eased slightly to 3.0%. Notably, the 3-month and 6-month annualized measures have begun to reaccelerate ahead of the Middle East-driven energy shock. 🔮 Looking ahead, we expect an energy- and food-driven price bump to push headline PCE inflation toward 4%, with core PCE temporarily rising toward 3.5%. We have raised our year-end 2026 forecast to 3.0% y/y for headline PCE and now see core PCE ending the year around 2.8%. via EY-Parthenon EY