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    Corporate America Is Testing the Limits of Its Pricing Power

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    Alexander MacKay coleads the Pricing Lab at Harvard Business School, a research center devoted to studying how companies set prices. Since the pandemic, he has watched how businesses have become more willing to experiment with what they charge their customers.Big companies that had previously pushed through one standard price increase per year are now raising prices more frequently. Retailers increasingly use digital price displays, which they can change with the touch of a button. Across the economy, executives trying to maximize profits are effectively running tests to see what prices consumers will bear before they stop buying.Huge disruptions to supply chains pushed up corporate costs during the pandemic and forced many companies to think more creatively about their pricing strategies, Mr. MacKay said. That supercharged a trend toward more rigorous pricing, and showed many companies that they could more boldly play with prices without chasing shoppers away. The experimentation continues even as costs ease.“We may have prices changing more quickly than they have before,” he said. That could mean up or down, though companies are generally more eager to raise prices than cut them. Firms are trying to figure out how to protect the profits they have built since the pandemic. For big companies in the S&P 500 index, the average profit margin — the percentage of profit relative to revenue — soared in late 2020 and into 2021, as government stimulus and the Federal Reserve’s emergency interventions stoked consumer demand. At the same time, companies raised their prices so much that they more than covered higher costs for energy, transportation, labor and other inputs, which have recently started to come down.Corporations as varied as Apple and Williams-Sonoma recently reported their highest-ever margins for the third quarter, while Delta Air Lines said its international routes generated record profitability over the summer.Margins eased somewhat last year, but have recently recovered to levels that would have set records before the pandemic. Average margins in nearly every sector in the S&P 500 are running near or above 10-year highs, according to Goldman Sachs.“Companies are maintaining or even expanding margins because they are not passing these cost cuts onto consumers,” said Albert Edwards, a strategist at Société Générale, who called recent moves in margins “obscene.”

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    Quarterly net profit margin of S&P 500 companies
    Source: FactSetBy The New York TimesNow, companies are trying to figure out how to set prices to protect profits at what could prove to be a turning point. High interest rates and waning savings are making some — though by no means all — shoppers more price sensitive.Many companies may be able to protect profits just by holding prices steady as their own costs come down. But some are still thinking about whether they can push prices up further as demand cools and overall inflation abates.“I don’t think companies have the monopoly power to just willy-nilly raise prices,” said Ed Yardeni, president of the research firm Yardeni Research.There’s a focus on margins over market share.Many corporations are talking on earnings calls about how they are prioritizing profit margins — even when that translates into less growth.Take Sysco, the food wholesaler. Its local market business has turned slower recently, Kevin Hourican, the company’s chief executive, said on an October earnings call.But “Sysco is not reacting by leading with price to win share,” he said, referring to the tactic of cutting prices to gain more customers, which is commonly used during downturns. “Instead, we are focused on profitable growth.”Lennox, a heating and air-conditioning company, is working to perfect its pricing strategy based on years of data, Alok Maskara, the firm’s chief executive, said at an investor event this summer.People in the industry are “margin-dollar focused versus revenue-dollar focused,” he said, implying that fewer, more-profitable sales are preferred to many, less-profitable ones.That’s a shift from post-2009 practice.The focus on higher margins — even if it means selling less — is in some cases a shift away from the conventional wisdom in the years during and after the 2009 recession. Back then, some executives felt compelled to compete on price for cost-sensitive shoppers. For hotels, that meant a focus on filling every room.“If you remember back in the Great Recession, there was this view of let’s just drop rates until we get people to heads in beds,” Leeny Oberg, Marriott’s chief financial officer, said in a September meeting with investors. She added that “it wasn’t necessarily the right strategy all the time.”Now “the industry has clearly learned some lessons,” she said. Over the past few years, the company has aimed for more of a balance between maximizing revenue and profit, she noted.Retailers, which have been caught out by shifting consumer tastes in recent years, are talking more lately about “inventory discipline,” or keeping less product in stock, so that they can avoid selling things at clearance prices. The logic is that it’s better to sacrifice a few sales by running out of products than being forced to slash prices in a way that hits the bottom line.The clothing chain American Eagle Outfitters has been expanding its margins by “maintaining tight inventory and promotional discipline,” Jay Schottenstein, the company’s chief executive, said on a November earnings call.Companies learned they can charge more than they thought.While consumers are pulling back from some purchases as prices rise, that is not universally true — hence the value of experimentation. Robert J. Gamgort, the chief executive of Keurig Dr Pepper, said recently that consumers have shown little reaction to higher costs for carbonated drinks.That suggests “it was too good of a value at the start at this,” he said at an investor conference in September, referring to the recent inflationary period. “It was underpriced.”The company, which raised prices at its U.S. beverage unit by 7 percent last quarter, highlighted “strong gross margin expansion” at the top of its latest earnings report.Some executives also find that they can charge more by branding something as a luxury product or experience.“Despite the current economic environment, we continue to see consumers trade up to premium amenities,” Melissa Thomas, chief financial officer at the movie theater chain Cinemark, said on a November earnings call.But price sensitivity may return.Kellogg, the cereal company, had been passing through substantial price increases without losing customers — a situation economists call low price elasticity. It’s like if you snap a rubber band (raise prices) but it doesn’t react (shoppers keep buying).But recently, consumers are beginning to pull back in response to sticker shock.“Price elasticity has hit the market pretty meaningfully,” Gary Pilnick, Kellogg’s chief executive, said on a call with analysts last month. “You might recall that there’s been about 35 percent of price increases over the last couple of years for us, and the elasticities were fairly benign for quite some time.”Price sensitivity is also showing up at brands that cater to lower-income consumers, like Walmart and McDonald’s, which have seen business expand as wealthier people look for deals.“We continue to gain share with both the middle- and higher-income consumers,” Ian Borden, chief financial officer of McDonald’s, said on an October earnings call, although he noted that the company was seeing its lower-income customers struggle.The ability to raise prices — or keep them high — may not last.Even as companies are getting creative to protect their margins, the economy has also held up better than many expected. Overall growth has remained rapid, consumer spending has expanded, and a long-warned-about recession has remained at bay.The question is whether companies will be able to protect profits in an environment where that momentum slows.“Customers are rebelling,” said Paul Donovan, chief economist at UBS Global Wealth Management. “We have reached that point of resistance.” More

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    Retail Group Retracts Startling Claim About ‘Organized’ Shoplifting

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    The National Retail Federation had said that nearly half of the industry’s $94.5 billion in missing merchandise in 2021 was the result of organized theft. It was likely closer to 5 percent, experts say.A national lobbying group has retracted its startling estimate that “organized retail crime” was responsible for nearly half the $94.5 billion in store merchandise that disappeared in 2021, a figure that helped amplify claims that the United States was experiencing a nationwide wave of shoplifting.The group, the National Retail Federation, edited that claim last week from a widely cited report issued in April, after the trade publication Retail Dive revealed that faulty data had been used to arrive at the inaccurate figure.The retraction comes as retail chains like Target continue to claim that they are the victims of large shoplifting operations that have cut into profits, forcing them to close stores or inconvenience customers by locking products away.The claims have been fueled by widely shared videos of a few instances of brazen shoplifters, including images of masked groups smashing windows and grabbing high-end purses and cellphones. But the data show this impression of rampant criminality was a mirage.In fact, retail theft has been lower this year in most of the country than it was a few years ago, according to police data. Some exceptions, including New York City, exist. But in most major cities, shoplifting incidents have fallen 7 percent since 2019.Organized retail crime, in which multiple individuals steal products from several stores to later sell on the black market, is a real phenomenon, said Trevor Wagener, the chief economist at the Computer & Communications Industry Association, who has conducted research on retail data. But he said organized groups were likely responsible for just about 5 percent of the store merchandise that disappeared from 2016 to 2020.He emphasized that there’s “a lot of uncertainty and imprecision” in measuring losses, because it is difficult to parse out what is shoplifting and what is organized crime.Mr. Wagener testified in Congress in June about the discrepancy in the National Retail Federation’s report.Even as it retracted the figure and revised the report, the federation, which has more than 17,000 member companies, insisted in an emailed statement that its focus on the problem was appropriate.“We stand behind the widely understood fact that organized retail crime is a serious problem impacting retailers of all sizes and communities across our nation,” the statement said. “At the same time, we recognize the challenges the retail industry and law enforcement have with gathering and analyzing an accurate and agreed-upon set of data.”At issue is “total annual shrink” — the industry term for the value of merchandise that disappears from stores without being paid for, through theft, damage and inventory tracking mistakes.Mary McGinty, a spokeswoman for the federation, said the error was caused by an analyst from K2 Integrity, an advisory firm that helped produce the report.The analyst, who was not named, linked a 2021 National Retail Federation survey with a quote from Ben Dugan, the former president of the advocacy group Coalition of Law Enforcement and Retail, who said in Senate testimony in 2021 that organized retail crime “accounts for $45 billion in annual losses for retailers.”Mr. Dugan was citing the federation’s 2016 National Retail Security Survey, which was actually referring to the overall cost of shrink in 2015 — not the amount lost to just organized retail crime, Ms. McGinty said.Alec Karakatsanis, a civil rights lawyer who has studied and critiqued how the media has covered organized retail crime, said that the retraction underscored how some news organizations, which have extensively covered the issue of shoplifting, were “used as a tool by certain vested interests to gin up a lot of fear about this issue when, in fact, it was pretty clear all along that the facts didn’t add up.”One of the most prominent examples came in October 2021, when Walgreens said it would close five stores in San Francisco, citing repeated instances of organized shoplifting. The company’s decision had come months after a video seen millions of times showed a man, garbage bag in hand, openly stealing products from a Walgreens as others watched.But an October 2021 analysis by The San Francisco Chronicle showed that Police Department data on shoplifting did not support Walgreen’s explanation for the store closings.Eventually, Walgreens retreated from its claims. In January, an executive at the company said that Walgreens might have overstated the effects on its business, saying: “Maybe we cried too much last year.”Mr. Karakatsanis said the exaggerated narrative of widespread shoplifting was weaponized by the retail industry as it lobbied Congress to pass bills that would regulate online retailers, which they claim is where much of the stolen product ends up.Commentators and politicians have seized on the issue. Earlier this year, Gov. Gavin Newsom, Democrat of California, responded to reports of large-scale thefts in the state with a call for tough prosecution of shoplifters and a plan to invest millions of dollars to fight “organized retail theft.” Gov. Ron DeSantis, Republican of Florida, signed a bill last year aimed at retail theft, and former President Donald J. Trump called for violence, telling Republican activists in California this year that the police should shoot shoplifters as they are leaving a store.Mr. Wagener, the chief economist at the Computer & Communications Industry Association, said that the National Retail Federation’s report in April immediately stuck out to him as wrong. The error was troubling, he said, because the federation has long been viewed as a trusted provider of data for the industry.What made the federation’s mistake even more surprising, Mr. Wagener said, was how starkly the figure contrasted to the group’s own previous findings.In 2020, the federation said in a report that organized retail crime cost retailers an average of $719,548 per $1 billion in sales — a number that would point nowhere near the roughly 50 percent claim made in the April report.Another National Retail Federation survey showed that all external theft — including thefts unrelated to organized retail crime — accounted for 37 percent of shrink, a figure that would still be billions of dollars less than the incorrect estimate of 50 percent made in April.“It would be a bit like the census claiming that nearly half of the U.S. population lives in the state of Rhode Island,” Mr. Wagener said. More

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    Sharp Drop in Airfares Cheers Inflation-Weary Travelers

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    Airfares to many popular destinations have recently fallen to their lowest levels in months, and even holiday travel is far cheaper than it was last year, providing some welcome relief to consumers who have been frustrated for months by high prices for all manner of goods and services.The glut of deals suggests that the airline industry’s supercharged pandemic recovery may finally be slowing as the supply of tickets catches up and, on some routes, overtakes demand, which appears relatively robust.Consider the fares that Denise Diorio, a retired teacher in Tampa, Fla., recently scored. She spent less than $40 on flights to and from Chicago and paid just $230 for a round-trip ticket from New York to Paris and back, a trip she plans to take this month.“I’ve been telling all my friends, ‘If you want to go somewhere, get your tickets now,’” she said.The bargains she found may be exceptional, but Ms. Diorio is right that deals abound.Early this month, the average price for a domestic flight around Thanksgiving was down about 9 percent from a year ago. And flights around Christmas were about 18 percent cheaper, according to Hopper, a booking and price-tracking app. Kayak, the travel search engine, looked at a wider range of dates around the holidays and found that domestic flight prices were down about 18 percent around Thanksgiving and 23 percent around Christmas.“In a lot of cases, we’re seeing some of the lowest fares that we’ve seen really since travel started coming back after the drop-off in 2020,” said Kyle Potter, executive editor of Thrifty Traveler, a travel blog and deal-watching service.Domestic ticket prices fell over the summer, Mr. Potter said, and deals on international travel, particularly to Europe, have become more common recently.Airlines lower their fares when they are trying to get more people to book tickets as demand is slowing or they are facing stiffer competition. There’s little question that competition has intensified on some routes, but travel experts say it’s not clear whether demand is waning.Thanksgiving this year is expected to set a record for air travel, with nearly 30 million passengers forecast, according to Airlines for America, an industry group. That would be about 9 percent more than last year and 6 percent more than in 2019, before the pandemic.But some airlines say demand is slowing outside of holiday and other peak travel periods. In addition, some airports have been so flooded with flights that carriers have been forced to cut fares to fill planes.That hadn’t been much of a problem for most of the recovery from the pandemic. Weather and other disruptions limited the supply of flights last year and in 2021, as did shortages of trained pilots, parts and planes, among other factors. That drove up ticket prices, kept planes full and helped airlines take in strong profits.Thanksgiving this year is expected to set a record for air travel, with nearly 30 million passengers anticipated.Stefani Reynolds for The New York Times“The airline industry has never delivered the types of profit margins and return on capital that it has done over the last 2.5 years,” said John Grant, chief analyst with OAG, an aviation advisory and data firm. “We’re getting back to a more normal industry.”For the largest U.S. airlines, the good times have continued, fueled in particular by thriving demand for international travel. But smaller and low-fare carriers have started to suffer. Several reported disappointing financial results for the three months that ended in September. Executives at those airlines have said demand is weakening, fares are falling and costs remain high. They also say bad weather and a shortage of air traffic controllers have made flying more difficult.JetBlue Airways, for example, lost $153 million in the third quarter, compared with a $57 million profit in the same period last year. The company said recently that it was moving flights away from crowded markets, such as New York, to those where it expected stronger performance, such as the Caribbean. The budget carriers Spirit Airlines and Frontier Airlines recently told investors that they were looking to cut costs by tens of millions of dollars.Competition has been fierce in some important markets, driving down fares and profits.In Denver, where Frontier is based, about 14 percent more seats were available on flights this summer than in the summer of 2019, according to Cirium, an aviation data provider. Miami and Orlando, Fla., two popular destinations served by many budget carriers, saw even larger increases in capacity.But while airlines added flights in popular markets as they chased passengers, airports in other cities, including Los Angeles, a hub for several major airlines, had large declines in capacity from the summer of 2019.“You’ll find that there’s a large correlation between the airlines that are doing well and the ones that are struggling, margin-wise, when you compare where their concentrations are,” Barry Biffle, Frontier’s chief executive, said last month on a conference call to discuss the airline’s third-quarter results.When it comes to international routes, analysts are less certain of why fares are falling and whether they will remain low. The kinds of deals that Ms. Diorio got for her Paris trip could mean that larger airlines soon find themselves facing a financial squeeze or merely that the industry is returning to a prepandemic normal.“Historically, demand to Europe softens in the winter,” said Steve Hafner, Kayak’s chief executive. “So I think that reflects normal trends.”But demand for international travel could face challenges, partly because of the wars in the Middle East and Ukraine. Analysts also warn that many consumers may be less willing or able to splurge on travel than they were in the last couple of years, when they had pandemic savings to draw from. Even if demand remains strong, airlines risk offering too many seats on popular overseas routes.Whatever the cause of the recent drop in fares, the deals are a welcome break to travelers from years of high prices, Mr. Potter said.“Either way the recipe is there for cheap flights,” he said. “If it’s just a little bit of overcapacity, that’s a win for consumers. If travel demand is dropping, in some ways that’s an even bigger win for people who are never going to give up on travel.” More

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    Halloween Shoppers Not Spooked as Economic Slowdown Remains Elusive

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    Economists spent much of 2023 warning that a recession could be imminent as the Federal Reserve raised interest rates to the highest level in more than two decades. But for companies like Soergel Orchards in western Pennsylvania, a slowdown is nowhere in sight.“People are buying the decorative things,” said Amy Soergel, manager at the company who explained that gourds and cornstalks were in high demand and that customers were coming out to select pumpkins and apples. “People love to pick — people will pick anything.”Sales are up even though a string of rainy weekends have held back attendance at the farm’s annual fall festival. Demand at the hard cider shop has been solid. And the owners are bracing for a strong season in their store selling Christmas decorations.Soergel’s bustling business is a microcosm of a trend playing out nationwide. Consumer demand has unexpectedly boomed in 2023, defying widespread expectations for a slowdown and helping to fuel strong overall growth. The economy expanded at an eye-popping 4.9 percent annual rate in the third quarter, far faster than the roughly 2 percent pace officials at the Fed think of as its standard growth pace.That is great news for American companies. But it is a also a source of confusion. Why is the economy still growing so quickly more than a year and a half into the Fed’s campaign to slow it down, and how long will the upswing last?Fed officials have lifted interest rates above 5.25 percent, making it more expensive to take out a mortgage, borrow to expand a business or carry a credit card balance. Those moves were meant to trickle out through markets to cool the real economy. Some parts of the economy have felt the squeeze — existing home sales have slowed, for instance. Yet employers continue to hire and families keep spending.Customers were coming to Soergel Orchards to select pumpkins and apples.Ross Mantle for The New York Times“People love to pick — people will pick anything,” a manager said.Ross Mantle for The New York TimesCornstalks and gourds are in high demand at Soergel’s.Ross Mantle for The New York TimesIt is difficult to predict what comes next as the all-important holiday shopping season approaches. A solid job market and cooling inflation could combine to give consumers the wherewithal to keep powering the economy forward. But many companies are being careful not to build up too much inventory or predict too strong a sales outlook, worried that higher borrowing costs could collide with smaller savings piles and the accumulated effects of more than two years of rapid inflation to make Americans thriftier.“Sentiment definitely feels down,” Thomas Barkin, president of the Federal Reserve Bank of Richmond, said during an interview on Oct. 19. “The folks I talk to are still clamping down in preparation for 2024.”What happens with holiday shopping could help shape what the Fed does next.The central bank has been trying to slow growth for a reason: Inflation has been above 2 percent for 30 months now. To get prices under control, policymakers think they need to tamp down demand.The logic is fairly simple. If rapid hiring continues and wage gains prove quick, people who are earning more money are likely to feel confident and keep spending. And if shoppers are eager to buy restaurant dinners, new gadgets and updated wardrobes, it will be easier for companies to protect their profits by raising prices.That is why Fed officials are keeping an eye on how strong consumers and the job market remain as they contemplate what to do next with interest rates. Policymakers are almost sure to leave rates unchanged at their meeting on Nov. 1, and a number of them have suggested that they may be done raising borrowing costs altogether.Soergel’s owners are bracing for a strong season in their store selling Christmas decorations.Ross Mantle for The New York TimesBut top officials have kept alive the possibility of one final quarter-point increase, if economic data were to remain buoyant.“We are attentive to recent data showing the resilience of economic growth and demand for labor,” Jerome H. Powell, the Fed chair, said in a recent speech, adding that continued surprises “could put further progress on inflation at risk and could warrant further tightening of monetary policy.”So far, companies offer a mixed picture on the outlook. Many are suggesting that seasonal shopping is off to a strong start. Halloween spending is expected to climb to a record $12.2 billion, up 15 percent from last year’s record of $10.6 billion, according to the National Retail Federation’s annual survey. The group is expected to release its holiday forecast this week.Walmart reported strong sales during its back-to-school season, which its chief executive noted was a good indicator for how spending would look during Halloween and Christmas.“Typically when back-to-school is strong, it bodes well for what happens with Halloween and Christmas,” Doug McMillon, the Walmart chief, said on an earnings call in August.But some companies are uncertain. The Tractor Supply chief executive, Hal Lawton, said during an earnings call last week that the retailer was stocking up on fall and winter décor — selling, for instance, a skeleton cow that was a “TikTok viral sensation.”But “we acknowledge there is a broader range of estimates for holiday, consumer spending than we’ve seen over the last couple of years,” he added.And some analysts think winter shopping could prove weak. Craig Johnson, founder of the retail consultancy Customer Growth Partners, expects holiday sales to grow at 2.1 percent, the slowest since 2012, he said in a report released Oct. 17.“The fact that people had a good Halloween doesn’t necessarily mean that they’re going to have a good holiday,” Mr. Johnson said. “It’s a different buying mentality and there’s not a carryover — you’re not going to see apparel lines from Halloween extend over into Christmas.”Retailers report that they are carefully watching how much inventory they have headed into the holidays, and a Fed survey of business experiences from around the Fed’s 12 districts referenced the word “slow,” “slower” or “slowing” 69 times.Demand at the on-site hard cider shop has been solid.Ross Mantle for The New York TimesPart of the challenge in forecasting is that consumers seem to be splitting into two groups: Wealthier consumers keep spending even as the bottom tier of shoppers either pull back or look for deals.The department store chain Kohl’s says it is seeing this type of bifurcation play out in its customer base and is adjusting its stores accordingly.Shoppers at the Kohl’s in Ramsey, N.J., were greeted with a range of already-discounted Christmas items like miniature snowmen and ornaments at the front of the store. That design was done on purpose — Kohl’s executives want the section to appeal to deal-hungry shoppers.But in a sign that higher earners could fuel growth, it has also started to stock new category items like decanters, wine glasses and electric corkscrews.“We want to make sure we’ve got the right broad breadth of assortment for the breadth of customer base that we’ve got,” said Nick Jones, Kohl’s chief merchandising and digital officer. “And that’s an element of making sure everything’s got to be great value. But great value doesn’t always mean low price.” More

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    G.M. Profit Down 7% in Strike-Affected Quarter

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    The carmaker reported $3.1 billion in profit from July through September, which included two weeks of walkouts by the United Automobile Workers.General Motors said on Tuesday that it made $3.1 billion in profit from July through September, a year-over-year decline of more than 7 percent that was due partly to the six-week strike by the United Automobile Workers, which has idled two of the company’s vehicle plants and 18 of its parts distribution centers.G.M. said the strike had lowered its earnings before interest and taxes by about $200 million in the final weeks of the third quarter, and by about $600 million since the fourth quarter started on Oct. 1. The automaker also estimated that the strike could cost it $200 million a week going forward.“We continue to be optimistic we will be able to reach an agreement as soon as possible,” G.M.’s chief financial officer, Paul Jacobson, said in a conference call with reporters, but he declined to say if the company believed it was near a deal on a new contract with the U.A.W.On Friday, G.M. gave the union a contract offer that included a 23 percent increase in wages over four years. That would lift the standard U.A.W. wage from $32 an hour to more than $40. At that wage, an employee working 40 hours a week would earn about $84,000 a year, not including extra pay for overtime or profit-sharing bonuses, which have topped $10,000 in the past two years.Mr. Jacobson said negotiations with the union were continuing. The union’s strike, which has targeted specific sites owned by Detroit’s Big Three automakers, has idled a G.M. pickup truck plant in Missouri and another in Michigan that makes large sport utility vehicles.In the third quarter, G.M. earned almost all of its profit in North America, which is largely driven by factories in the United States staffed by U.A.W. members. Its bottom line was hurt by a 42 percent drop in profits from its joint ventures in China, a small profit decline in its financial arm and a loss from its Cruise division, which is working to develop self-driving cars.Despite the strike, G.M. reported that its revenue rose about 5 percent in the third quarter, to $44.1 billion. It sold 981,000 vehicles globally in the quarter, about 15,000 more than a year earlier.The company’s quarterly results were better than analysts expected, and G.M.’s stock rose in premarket trading on Tuesday.Mr. Jacobson said that G.M. hoped to introduce redesigned S.U.V. models that would be more profitable than those they were replacing, and that the company would save money by slowing its planned rollout of electric vehicles. G.M. recently said it was pushing back the start of production of electric pickups at a plant in Orion, Mich., from 2024 to late 2025, in response to slower-than-expected growth in sales of E.V.s.While G.M. is now planning a slower ramp-up of E.V. production in 2025, it still aims to be able to produce one million electric vehicles a year in North America by the end of 2025, Mr. Jacobson said.“Our commitment to an all-E.V. future is as strong as ever,” he said. More

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    U.S. Consumers Are Showing Signs of Stress, Retailers Say

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    Consumer spending remains resilient, but retailers’ latest earnings offered a glimpse into worrying shifts in shopping habits.Consumers power the U.S. economy, and their capacity to spend has repeatedly defied predictions. In early 2020, after a short but severe recession caused by the pandemic, consumers splurged on big-ticket goods, from patio furniture to flat-screen TVs and home gym equipment. Then came what economists called “revenge spending,” with experiences that were off limits during lockdowns, like traveling and going to concerts, taking precedence.Now there are signs that some shoppers are becoming more cautious, as Americans’ savings erode, inflation continues to bite and other factors tighten their wallets — namely, the resumption of student loan payments in October. Financial reports from retailers — including Macy’s, Kohl’s, Foot Locker and Nordstrom — that landed this week suggest a shift is underway, from consumers buying with abandon to spending more on their needs.“Last year it was more psychological,” said Janine Stichter, a retail analyst at the brokerage firm BTIG. “But now that we’ve been dealing with inflation for as long as we have, I just think we’re getting to a point where savings are depleted.”In the aggregate, consumer spending remains solid. Retail sales in July were stronger than expected, leading some economists to raise their forecasts for economic growth this quarter. A robust labor market and rising wages have buoyed consumer confidence.But even retailers with strong sales say there are signs of economic strain among shoppers.“It is clear that the lower-income shopper, our core customer, is still under significant economic pressure,” Michael O’Sullivan, the chief executive of the off-price retailer Burlington Stores, said in a statement on Thursday. In the three months through July, Burlington’s sales rose 4 percent and its profit more than doubled.Discounters historically perform well during times of economic uncertainty as shoppers across the income spectrum look to save money. Burlington, along with Walmart, Dollar Tree and TJX, the owner of T.J. Maxx and Marshalls, all reported a rise in sales last quarter, as shoppers sought discounts on essential items like groceries, turned to cheaper private label products and reined in spending on discretionary goods.The strong performance at off-price and discount retailers stands in contrast to those at department store chains and many fashion and footwear retailers.In calls with Wall Street analysts this week, retail executives also flagged rising credit card delinquencies and higher rates of retail theft, ominous signs that consumers could be more strapped for cash.Jeff Gennette, the chief executive of Macy’s, the largest department store in the United States, said shoppers had “more aggressively pulled back” on spending in the discretionary categories, resulting in an overall decline in sales last quarter. Half of Macy’s shoppers make $75,000 or less.“They are not converting as easily and becoming more intentional on the allocation of their disposable income,” he said.“Probably the most important thing people are spending money on is general merchandise,” said Max Levchin, the chief executive of Affirm, which extends credit to shoppers at checkout via a so-called buy-now, pay-later model. “People are looking for more value for less money, or simpler functionality and lower price,” he said. The company reported an 18 percent rise in active customers from a year earlier.The finance chiefs of Macy’s, Kohl’s and Nordstrom told analysts that delinquencies on the department stores’ credit cards had risen. In Macy’s case, the increase in nonpayments last quarter was “faster than expected.”“When people are not paying their credit card bills, that suggests a really stretched consumer,” Ms. Stichter of BTIG said.And that means consumers are being more selective about where they shop and what they buy.“You’re going to see brands that are winners and losers,” Fran Horowitz, the chief executive of Abercrombie & Fitch, said in an interview. The fashion retailer reported a jump in sales of more than 10 percent last quarter, as it was able to “chase” the new styles that got more shoppers through the doors, Ms. Horowitz said.By contrast, on the same day Foot Locker reported a sales decline of nearly 10 percent for the quarter, it also cut its forecast for 2023 earnings for the second time this year, citing “ongoing consumer softness.”The back-to-school shopping season now underway is crucial for retailers, a harbinger of whether there will be strong sales for the rest of the year.And a new dynamic will soon come into play. In October, student loan payments will resume for about 44 million Americans, after a pandemic relief measure put them on hold in March 2020. Retail executives have warned that the payment resumption could further squeeze their shoppers’ budgets.Halloween, which is just weeks after repayments resume, will also be a barometer for people’s willingness to spend on discretionary items like costumes and candy, said Nikki Baird, vice president of strategy at Aptos, a technology company that works with retailers like Crocs, L.L. Bean and New Balance.She said that the repayments will most affect the age group that typically spends on Halloween. “I think that will really tell us what does this mean for the holiday season,” Ms. Baird said. “If Halloween is a bust, then I think we have to really start looking at whether consumers are going to go big for Christmas, because I think it says they won’t.” More

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    Wages and Hiring Weigh on Minds of Company Executives

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    As companies reported their latest quarterly earnings in recent weeks, hiring, wages and head counts were popular topics as analysts quizzed executives about their plans.Some said they were avoiding expanding their payrolls as rapidly as in the past. Others said that rising wages remained a worry for their bottom lines. And many still looking to hire said that attracting and retaining workers was difficult as the labor market remained robust.“You have to work extra to hire people and to keep people,” Andrew Watterson, the chief operating officer of Southwest Airlines, said on a call with analysts. “Our clients still grapple with labor shortages,” said Martine Ferland, who runs the consultancy Mercer.Even so, the rate of workers quitting their jobs, a measure of workers’ confidence in their prospects and bargaining power, continued to fall in June, according to data released Tuesday. “If you think about our turnover coming down, that means we don’t have as many people we’re hiring as we were before,” said Rick Cardenas, the chief executive of Darden Restaurants, owner of the Olive Garden chain.Wage growth has also cooled in recent months, but remained robust last month, rising 4.4 percent from a year earlier. “We still face above normal levels of wage and benefit cost inflation in our cost structure,” Andre Schulten, the finance chief at the consumer goods company Procter & Gamble, said on a call with analysts.Kathryn A. Mikells, the chief financial officer of Exxon Mobil, said that the oil giant had seen lower prices for some of its materials like chemicals and sand, but “as it relates to things where labor is a high component of the cost, I would say we’re not yet necessarily seeing that deflationary pressure coming through yet.”Anthony Wood, the chief executive of Roku, the streaming device maker, told analysts that the company would continue hiring, but planned to do so outside of the United States, in places where workers “are just less expensive than Silicon Valley engineers.”Other companies, especially in the tech industry, said that they had become more judicious about hiring, with some freezing payrolls or even cutting jobs.Mark Zuckerberg of Meta, which cut tens of thousands of jobs in multiple rounds of layoffs since late last year, said last week that “newly budgeted head count growth is going to be relatively low” at the company, which owns Facebook, Instagram and WhatsApp. Sundar Pichai of Alphabet said that the tech giant would “continue to slow our expense growth and pace of hiring.” More

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    JPMorgan, Citigroup and Wells Fargo Report Better-than-Expected Profits

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    The NewsThree of the biggest banks in the United States made a cumulative $22.3 billion in profit last quarter, a hefty jump from the same period last year, the lenders reported Friday.The largest bank in the nation, JPMorgan Chase, led the way with $14.5 billion in profit, helped by growth virtually across the board, including increases in lending and credit-card transactions. Wells Fargo pulled in $4.9 billion and Citi earned $2.9 billion in the quarter. All of the earnings were higher than analysts had expected.JPMorgan Chase’s headquarters in New York. The bank made $14.5 billion in profit last quarter.Haruka Sakaguchi for The New York TimesWhy It MattersGiven its size, JPMorgan in particular is a proxy for the banking industry. Jamie Dimon, the bank’s chief executive, has deep political connections, and his prognostications on the economy are scrutinized in some circles as closely as a central banker’s musings.On Friday, Mr. Dimon told analysts that he expected the U.S. economy to experience “a soft landing, mild recession or a hard recession,” though he didn’t put a time frame on the prediction. “Obviously, we shall hope for the best,” he said.In its latest report, the bank listed a litany of risks, including that consumers are burning through their cash buffers and that inflation remains high. Last quarter, JPMorgan lost $900 million on investments in U.S. Treasury bonds and mortgage-backed securities, which have dropped in value as rates have risen — but that was barely a dent in its results.Wells Fargo, one of the nation’s largest mortgage lenders, is watched by analysts for signs of economic stress. The U.S. economy “continues to perform better than many had expected,” said Charles W. Scharf, the bank’s chief executive.The bank said Friday that soured loans in its commercial business had increased, but that its consumer business had held fairly steady, with a slight rise in credit-card defaults offset by a drop in losses on auto loans. Commercial real estate, especially loans on office space, is a pain point, and the bank set aside nearly $1 billion more for losses.Unlike the other banks, Citigroup reported a fall in second-quarter profit, although the decline was not as severe as analysts had predicted. “The long-awaited rebound in investment banking has yet to materialize, making for a disappointing quarter,” Citi’s chief executive, Jane Fraser, said in a statement.BackgroundThe three major banks that reported earnings Friday have been all over the news this year, thanks to their prominent role attempting to be a stabilizing force during the spring banking crisis that felled three smaller lenders. JPMorgan bought one of those failed banks, First Republic. In an indication of how troubled that institution had become, JPMorgan said Friday that it was setting aside $1.2 billion to deal with losses in First Republic’s lending portfolio.Analysts still expect the acquisition to prove worthy in the end, thanks to First Republic’s base of wealthy clients and coastal branches, which Friday’s results show are already buoying JPMorgan’s asset and wealth management arms.The U.S. government debt-limit standoff in April and May was also reflected in the banks’ results, with Citi citing anxiety during the negotiations as pushing investment-banking clients to the “sidelines” during the second quarter.What’s NextIn the next week or so, a slew of other banks will report quarterly earnings. Among the most closely watched will be Wednesday’s results from Goldman Sachs, which has hinted publicly of a disappointing stretch, and regional banks like Western Alliance and Comerica, which will be looking to prove they have bounced back from their recent troubles. More