High Inflation and Interest Rates Lead Consumers to Delay Big Purchases

Consumer Behavior Shifts

Amidst persistent inflation and increased borrowing costs, Americans are postponing large, traditionally financed purchases. Corporate leaders have noted a significant drop in consumer interest for expensive items across various sectors, from bedrooms to backyards.

Sleep Number's Struggles

Shelly Ibach, CEO of Sleep Number, highlighted that limited purchasing power has led consumers to scrutinize their spending more closely, often deferring higher-priced, durable goods. The mattress industry, in particular, faces a "historic recession," with Sleep Number reporting losses and lower revenues than anticipated.

Economic Indicators and Federal Reserve Actions

This trend of cautious spending may indicate to the Federal Reserve that its interest rate hikes are successfully slowing down the economy. This could pave the way for future rate reductions, potentially benefiting both consumers and investors.

Industry Insights

• Leggett & Platt: The company, which supplies components for beds, reports that consumers are focusing more on essential services and basic needs rather than luxury goods, influenced by both inflation and high interest rates.

• Wayfair: The furniture e-commerce giant has seen a decline in sales of its most expensive items, a trend common across home furnishers.

Rising Debt and Credit Concerns

With traditional credit options becoming less attractive due to rising interest rates, more consumers are falling behind on credit card payments. According to the San Francisco Fed, U.S. households are now over $70 billion in debt. The era of excess cash from pandemic stimulus has ended, and borrowing costs are weighing heavily on consumers.

Impact on the Housing Market

High interest rates have also cooled the housing market, with fewer people moving and making related purchases. This has affected companies like Enphase and Whirlpool, which report reduced demand linked to these economic conditions.

Disparities Among Consumers

The economic strain is more pronounced among lower-income consumers. For instance, Pool Corp. reports a decline in sales of lower-end pools, while demand for higher-end options remains steady. Generac, known for its power generators, notes that its more affluent customers are less affected by interest rate changes.

Future Outlook

Despite the challenges, some economists suggest that the current consumer caution could signal that inflationary pressures are easing. This might justify future interest rate reductions by the Federal Reserve. Additionally, the pandemic's effect of accelerating certain

purchases means consumers might not be ready for another wave of significant spending.

Overall, the landscape of consumer spending is shifting, influenced by high inflation and interest rates, creating a complex environment for businesses and policymakers alike.