“After the federal shutdown ended, sentiment lifted slightly from its mid-month reading,” wrote Joanne Hsu, the director of consumer surveys at the school. “However, consumers remain frustrated about the persistence of high prices and weakening incomes.”
The rate of inflation, which slowed earlier this year, has been climbing since April, according to federal data, reaching an annual rate of 3% in September. That’s stinging Americans’ wallets, and many aren’t expecting relief anytime soon. Respondents in the University of Michigan consumer sentiment survey expect inflation to hit 4.5% by next year.
Retail earnings reports over the past few weeks point to some troubling consumer trends. Walmart posted strong results last week as the discount retailer benefited from shoppers looking to save money on core items like groceries and other staples. The company said higher-income families are shopping more at the store in search of bargains, while lower-income families are under greater financial strain.
“As pocketbooks have been stretched, you’re seeing more consumer dollars go to necessities versus discretionary items,” said John David Rainey, Walmart’s chief financial officer, during the company’s earnings call.
Discount fashion retailers like Gap and TJX Cos., which owns the chains T.J. Maxx and Marshalls, also reported strong quarterly earnings, another sign that shoppers are trading down and seeking out cheaper options. Target and Bath & Body Works, which are seen as stores that encourage splurging, struggled during the previous quarter.
With their bank accounts already stretched, consumers are increasingly turning to financing in order to afford their purchases. A report last month from PayPal found that half of shoppers plan to use buy now, pay later services for their holiday shopping. These services, which include apps like Klarna, Afterpay and Affirm, allow customers to make a purchase and then pay it off in installments, typically with 0% interest.
These apps are especially popular with younger shoppers. According to the Deloitte study, 39% of Gen Zers and millennials will use buy now, pay later apps for Black Friday spending. Many shoppers use these services to spread out their spending over a longer period of time, but some worry that it entices people to spend more than they can afford and can pull them into debt they didn’t expect.
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