The Rabid Capitalist

Professor Glenn A. Okun

NYU Stern School of Business

Despite recently announced lagging economic indicators demonstrating that household spending rose more than expected in July, earnings guidance from public companies, a leading indicator, augur trouble for the consumer.

Discount retailers have reduced their earnings estimates for the remainder of the year as inflation and interest rates reduce the consumers’ demand for discretionary goods. In addition, middle- and lower-income customers have been hurt by reductions in government assistance.

Dollar General, Dollar Tree have reported that customers are limiting discretionary purchases while increasing their spending on lower margin food and other staples.

The stress is spreading across the consumer market basket.  Big Lots, a discount purveyor of household goods, reported an increase in demand for its low-price goods.  It noted that inflation pressure caused its shoppers to reduce their spending on discretionary items.   

Consumers are largely making trade-offs between staples and discretionary purchases in response to economic pressure.  Generally, there is a reliable consequence for firms: lower profits.