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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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    The Fed’s Preferred Inflation Measure Eased in October

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    The Personal Consumption Expenditures price index continued to cool and consumer spending was moderate, good news for the Federal Reserve.A closely watched measure of inflation showed continued signs of fading in October, encouraging news for the Federal Reserve as officials try to gauge whether they need to take further action in order to fully stamp out rapid price increases.The Personal Consumption Expenditures inflation measure, which the Fed cites when it says it aims for 2 percent inflation on average over time, climbed by 3 percent in the year through October. That was down from 3.4 percent the previous month, and was in line with economist forecasts. Compared with the previous month, prices were flat.After volatile food and fuel prices were stripped out for a clearer look at underlying price pressures, inflation climbed 3.5 percent over the year. That was down from 3.7 percent previously.The latest evidence that price increases are slowing came alongside other positive news for Fed officials: Consumers are spending less robustly. A measure of personal consumption climbed 0.2 percent from September, a slight slowdown from the previous month.The report could offer important insights to Fed officials as they prepare for their final meeting of 2023, which takes place Dec. 12-13. While investors widely expect policymakers to leave borrowing costs unchanged at the meeting, central bankers will release a fresh set of economic projections that could hint at their plans for future policy. Jerome H. Powell, the Fed chair, will also deliver a news conference.“They’re going to want to still stay cautious about declaring ‘Mission Accomplished’ too soon,” said Omair Sharif, founder of Inflation Insights. Still, “we’ve had a string of really good readings.”Policymakers have been closely watching how both inflation and consumer spending shape up as they assess how to proceed. They have already raised interest rates to a range of 5.25 to 5.5 percent, the highest level in more than two decades. Given that, many officials have signaled that it may be time to stop and watch how policy plays out.John C. Williams, the president of the Federal Reserve Bank of New York, hinted in a speech on Thursday that he expected inflation to moderate enough for the Fed to be done raising interest rates now, though officials could raise interest rates more if the data surprised them.“If price pressures and imbalances persist more than I expect, additional policy firming may be needed,” Mr. Williams said. He reiterated his assessment that the Fed is “at, or near, the peak level of the target range of the federal funds rate.”The economy has been more resilient to those higher borrowing costs than many expected, which is one reason that the Fed has maintained a wary stance. If strong demand gives companies the ability to keep raising prices without losing customers, it could be harder to fully vanquish inflation.That said, recent signs that consumers and companies are finally turning more cautious have been welcome at the Fed.“I am encouraged by the early signs of moderating economic activity in the fourth quarter based on the data in hand,” Christopher Waller, one Fed governor, said this week. He added that “inflation is still too high, and it is too early to say whether the slowing we are seeing will be sustained.”Mr. Sharif noted that the talk on Wall Street had coalesced around when the first interest rate decrease might come, and the Fed’s coming economic projections should offer insight. Some of Mr. Waller’s remarks this week fueled speculation that cuts could come on the early side next year.But “you don’t want to get too far ahead of your skis, for now,” Mr. Sharif said, noting that the data has gotten better in the past before worsening again. He doesn’t think that the Fed will want to start to talk about rate cuts too forcefully until it has data for late 2023 and early 2024 in hand.“I just think they’re going to want to stay a little bit cautious right now,” he said. More

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    As Holiday Shopping Season Begins, Retailers Worry

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    Consumer spending has been strong in 2023 despite higher prices and waning savings. But some retailers have jitters heading into Black Friday.Christina Beck is approaching this holiday season cautiously.Ms. Beck, a 58-year-old administrative director at a school, makes lists of gifts she plans to buy for her family and friends and sticks with it. But her spending this year will be kept in check by the high cost of food in grocery stores and restaurants, and the mortgage for a home in Minneapolis she bought last year with her best friend.That best friend, Kristin Aitchison, cannot wait for the holidays. Ms. Aitchison, 55, who works for a senior living home, advises her family each year that she plans to make the holidays smaller, spending less. And every year, she spends more than she did the year before.“I’m a huge gift giver,” Ms. Aitchison, who started her shopping in early November. “I have so much joy in giving gifts. I’m always running around the last week before Christmas because I have to find just a few more gifts.”There are many reasons for people to be more prudent in their holiday spending this year. While inflation is less rapid than it was a year ago, millions of shoppers still feel sticker shock when buying groceries. Payments on federal student loans, which were on pause during the pandemic, have resumed. And higher interest rates have meant larger credit card bills and, for home buyers, mortgage payments.Yet consumer spending has been surprisingly strong throughout 2023. For retailers, the question is whether people will continue to spend their way through the holiday season or decide this is the time to pull back.Predictions are murky. The National Retail Federation said it expected holiday sales to increase 3 to 4 percent from last year, without adjusting for inflation, on a par with the prepandemic 2019 season. But in a survey by the Conference Board, a nonprofit research group, consumers said they planned to spend an average of $985 on holiday-related items this year, down slightly from the $1,006 they anticipated spending last year.One closely watched early indicator, Amazon’s Prime Day in October, showed consumers were spending more, but only slightly. They spent an average of $144.53 on Prime Day, a 2 percent increase from the average the year before, according to Facteus, which analyzed credit and debit card transaction data.Last week, the Commerce Department reported that retail sales nationwide fell 0.1 percent in October from September, the first drop since March. Executives at Walmart also warned that consumer spending had weakened in the last two weeks in October, noting that people seemed to be waiting for sales.“It makes us more cautious on the consumer as we look into the fourth quarter,” John David Rainey, the chief financial officer of Walmart, said in an interview. “I think there’s likely more variability in the numbers.”Still, the retail sales pullback was smaller than the decline that many economists had expected after a very strong summer of spending, and some analysts saw it as a sign of continued consumer resilience.Holiday sales are likely to be decent by prepandemic standards, though not as strong as the gangbuster seasons in 2020 and 2021, said Tim Quinlan, a senior economist at Wells Fargo.Higher-income shoppers still have plenty of extra savings built up during and after the pandemic, but those with lower incomes have more fully used up their resources, Mr. Quinlan said. Higher interest rates may also deter shoppers from putting holiday shopping on credit cards. The combination of reduced savings and higher rates “makes it tougher to have a big pile of presents under the tree this year,” he said.For much of the year, consumer spending has been underpinned by continued strength in the job market and wage gains. Average hourly earnings in October were up 4.1 percent from a year earlier. That was faster than inflation. As measured by the Consumer Price Index, prices were up 3.2 percent.Those factors have helped to keep retail sales climbing on a yearly basis.It’s the Most Wonderful Time of the Year (for the Economy)Three decades of monthly retail spending show how important the holiday season is to our economy.Still, signs of slowing are beginning to show up. Wage growth is slowing, and the unemployment rate has risen over recent months. Like Mr. Quinlan, many economists think that consumers are getting closer to exhausting their savings, though some studies suggest that many have been drawing down their financial cushions only slowly.For many, the resumption of student-loan payments is putting a crimp in holiday spending plans. In a holiday survey by the consulting firm Deloitte, 17 percent of respondents said they had to resume student loan payments, and almost half of them said they planned to reduce their holiday spending as a result.In past years, Tara Cavanaugh, a 37-year-old marketing manager, spent as much as $1,500 on gifts for her family, friends and various office parties, she said. This year, after a move with her partner to Boulder, Colo., and the resumption of her $400-a-month student-loan payments — her partner also has student-loan debt — she said she was paring down her gift list and expected to spend closer to $200.Tara Cavanaugh outside her home in Boulder, Colo. She plans to pare down her gift list this year.Kevin Mohatt for The New York Times“We both make decent incomes and live simply, sharing an old car and our furniture is still from Ikea, but it still feels like we’re struggling,” Ms. Cavanaugh said of her and her partner. “I know a lot of us are feeling the pinch, so I’m not going to freak out about giving gifts to people who are older than me, are doing fine and don’t need anything.”As always, many people are looking for deals, whether on Black Friday or through other pre-Christmas sales. About 52 percent of consumers plan to watch for deals and special offers online and 39 percent plan to hunt for sales in stores this year, according to a survey by the research firm Forrester.When the Amazon toy catalog landed in Claire Kielich’s mailbox in Austin, Texas, her two daughters, ages 5 and 10, who also have birthdays in December, began circling what they wanted.“I’ll be watching to see if any of those things go on sale for Black Friday,” said Ms. Kielich, 40, who does product development and sourcing in the furniture industry. She said she expected to spend around $1,000 this holiday season and already had a stash of stocking stuffers hidden in one of her closets.Ms. Beck in Minneapolis started buying holiday gifts in July, making lists of what friends and family needed or liked, picking up unique items at local craft stores or from small local businesses and storing them in what she calls her “present drawer.” This approach, she said, helps her put more thought into her gifts and keeps her from spending beyond her budget.Her best friend, Ms. Aitchison, takes the opposite approach. While careful with her finances during the year, come the holidays she has no plan and, basically, no budget. Her oldest child has barred her from ever buying him another pair of corduroy pants. Last year, she bought four nine-foot-tall blow-up dinosaur costumes for her adult children.“Of course, nobody needs a blow-up dinosaur costume,” Ms. Aitchison conceded.This holiday season, she plans to shop until she drops.“I don’t think about what I’m going to spend,” she said. “In January and February, because I spent all my money, I’ll eat beans and rice while I pay the bills off.”Despite their different holiday shopping styles, Ms. Aitchison said she and Ms. Beck always had fun shopping together.“She doesn’t get nearly the amount of things that I do,” Ms. Aitchison said. “She’s always like: ‘Kristin stop. Put that down. You don’t need it.’” More

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    It’s the Most Wonderful Time of the Year (for the Economy)

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    For many Americans, the end of the year is a time for parties, family gatherings, festive meals and, of course, shopping. And all that holiday celebrating makes the fourth quarter the most important time of the year for the U.S. economy. 1995 2000 2005 2010 2015 2020 🎁 🎁 🎁 🎁 🎁 🎁 🎁 🎁 […] More

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    What to Watch for as the Federal Reserve Meets This Week

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    Central bankers are expected to leave interest rates steady at a 22-year high of 5.25 to 5.5 percent. Investors are looking for hints at what’s next.Federal Reserve officials are widely expected to leave interest rates steady at the conclusion of their two-day meeting on Wednesday. But investors and economists will watch for any hint about whether rates are likely to stay that way — or whether central bankers still think they might need to increase them again in the coming months.Officials will release a statement announcing their policy decision at 2 p.m., followed by a news conference with Jerome H. Powell, the Fed chair, at 2:30 p.m. Both will offer policymakers a chance to signal what they think might come next for interest rates and the economy.Central bankers have already raised interest rates to a range of 5.25 to 5.5 percent in a push to tame inflation. That rate setting is up from near-zero as recently as early 2022, and is the highest level in 22 years.Higher borrowing costs are meant to make it more expensive to buy a home, purchase a car or expand a business using a loan. By tapping the brakes on demand and hiring, that slows the broader economy, which can help to put a lid on price increases.Fed officials have widely signaled that they are close to the point where they no longer need to raise interest rates — simply leaving them around this level will cool the economy and help drive inflation back down to their 2 percent goal over time. The question now is twofold: Will policymakers feel it necessary to make one more quarter-point interest-rate move later this year or early next? And once they decide that rates are high enough, how long will they leave them elevated?Here’s what to watch for on Wednesday.Jerome Powell, the Federal Reserve chair, said in that “at the margin” the recent tightening in financial conditions could reduce the need for further tightening, “though that remains to be seen.”Michelle V. Agins/The New York TimesThe Fed’s language will be in focus.Central bankers will first release their standard monetary policy statement, and markets will carefully watch to see if officials make any changes that suggest they are done raising interest rates.Last time, officials said that “in determining the extent of additional policy firming that may be appropriate,” they would contemplate incoming economic data. If they softened that language to make further policy moves sound less likely, it would be notable.But investors may not find much else to parse in this release. Fed officials will not release fresh quarterly economic projections again until December. Given that, traders will have to watch Mr. Powell’s news conference for more details about what comes next.Recent market moves could be critical.As of the Fed’s latest economic forecasts in September, officials still thought that one more rate increase in 2023 might be appropriate.But something critical has changed in the intervening weeks.Long-term interest rates have climbed notably in markets since the Fed gathered on Sept. 19-20. While central bankers directly set short-term interest rates, longer-term borrowing costs often adjust only at a delay — and the recent jump is making everything from mortgages to business loans much more expensive.That could help slow the economy, doing some of the Fed’s work for it. And some economists think in light of that, central bankers will no longer see a need for another rate increase.Mr. Powell, during a question-and-answer session on Oct. 19, said that “at the margin” the recent tightening in financial conditions could reduce the need for further tightening, “though that remains to be seen.”“I took it to mean that perhaps there isn’t as much urgency to raise interest rates further,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. She said that she didn’t expect officials to rule out another move, but “they need to manage a broad range of risks right now.”If consumer spending remains so strong that companies feel they can raise prices without scaring away customers, it could make it tough to fully wrestle inflation back down to 2 percent.Amir Hamja/The New York TimesStrong consumer spending may keep officials alert.While the Fed is dealing with the possibility that higher market-based interest rates will weigh on the economy, they are also confronting another potential challenge: Economic data have remained surprisingly strong in recent months.On one level, this is good news. Consumers are shopping and companies are hiring at a rapid clip in spite of higher interest rates, and that resilience has come at a time when inflation has moderated substantially. The Fed’s favorite inflation gauge has slowed to 3.4 percent, down from 7.1 percent at its peak in summer 2022.But if consumer spending remains so strong that companies feel they can raise prices without scaring away customers, that could make it tough to fully wrestle inflation back down to 2 percent.That’s why policymakers at the Fed are watching the continued strength closely — and trying to decide whether it suggests that further interest rate increases are needed.Timing is a big question.Officials may decide that they simply need more time to watch economic trends play out.Holding off on further rate moves in November — and possibly beyond — could give officials a chance to see if growth and consumer spending slow in the way companies have been warning they could.Plus, keeping rates on pause will give officials more time to see how looming geopolitical risks shape up. The war between Israel and Hamas could affect the economy in hard-to-predict ways. If it escalates into a regional war, it could shake consumer confidence. But a wider conflict could also cause oil prices to pop, pushing up inflation.At the same time, officials won’t want to fully rule out a future move at a time when market rates could fall, risks could fade and growth could remain quick.“Maintaining optionality makes a lot of sense in the current context,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank.Wall Street is divided over what will come next. Investors see about a one-in-four chance of a rate move at the Fed’s final 2023 meeting, which takes place on Dec. 13. They see a slightly higher — but far from guaranteed — chance of a move in early 2024.“Nobody is feeling a high degree of confidence about the economic outlook right now,” Ms. Uruci said. 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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    Consumers Kept Spending in September, as Inflation Held Steady

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    Overall inflation stayed at 3.4 percent in September, down from a peak of around 7 percent.American consumers spent at a robust clip last month, fresh data showed, as the economy continued to chug along even after more than a year and a half of Federal Reserve interest rates increases.The Fed’s policy moves have been intended to slow demand in order to tamp down inflation. Price increases have been slowing down: Friday’s Personal Consumption Expenditures report also showed that overall inflation held steady at 3.4 percent in September.That was in line with what economists had expected, and is down from a peak of 7.1 percent in the summer of 2022. And after stripping out volatile food and fuel for a clearer sense of the underlying inflation trend, a closely-watched core inflation measure eased slightly on an annual basis.Still, Fed officials aim for 2 percent inflation, so the current pace is still much faster than their goal.The question confronting policymakers now is whether inflation can slow the rest of the way at a time when consumer spending remains so strong. Businesses may find that they can charge more if shoppers remain willing to open their wallets. Friday’s report showed that consumer spending climbed 0.7 percent from the previous month, and 0.4 percent after adjusting for inflation. Both numbers exceeded economist forecasts.The strong spending figures are likely not enough to spur Fed officials to react immediately: Policymakers are widely expected to leave interest rates unchanged at their meeting next week, which wraps up on Nov. 1. But such solid momentum could keep them wary if it persists.“You see inflation still generally trending in the right direction, so I think they’re willing to look past this,” said Carl Riccadonna, chief U.S. economist at BNP Paribas. “If this continues for multiple quarters, then I think that maybe it starts to wear a little bit thin: If you have persistent above-trend growth, then you have to start worrying about what the inflation consequences will be.”Fed policymakers have raised interest rates to 5.25 percent, up from near-zero as recently as March 2022, and many officials have suggested that interest rates are likely either at or near their peak.But policymakers have been careful to avoid entirely ruling out the possibility of another rate increase, given the economy’s staying power.A report yesterday showed that the economy grew at a 4.9 percent annual rate in the third quarter, after adjusting for inflation. That was a rapid pace of expansion, and was even faster than what forecasters had expected.“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.”Inflation has slowed over the past year for a number of reasons. Supply chains became tangled during the pandemic, causing shortages that pushed up goods prices — but those have eased. Gas and food prices had shot up after Russia’s invasion of Ukraine, but have faded as drivers of inflation this year.Some of those changes have little to do with monetary policy. But in other sectors, the Fed’s higher interest rates could be helping. Pricier mortgages seem to have taken at least some steam out of the housing market, for instance. That could help by spilling over to keep a lid on rent increases, which are a big factor in key measures of inflation.Wrestling inflation down the rest of the way could prove to be more of a challenge. Almost all of the remaining inflation is coming from service industries, which include things like health care, housing costs and haircuts. Such price increases tend to stick around more stubbornly.For now, officials are waiting to see if their substantial rate moves so far will continue to feed through to cool the economy.There are reasons to think that growth could soon slow.“Despite the quarter-to-quarter gyrations in economic data, the Fed feels that it has restrictive policy in place,” said Mr. Riccadonna from BNP. “It’s really just a matter of waiting for the medicine to kick in, to a full degree.”Plus, a recent jump in longer-term interest rates could weigh on the economy. While the Fed sets short term rates directly, those market-based borrowing costs can take time to adjust — and they matter a lot. The jump in long term rates is making it much more expensive to take out a mortgage or for companies to borrow to fund their operations.Plus, consumers have slightly less money to spend: After adjusting for inflation, disposable income declined by 0.1 percent in September, Friday’s report showed. And global instability — including from the war between Israel and Hamas — could add to uncertainty and economic risk.“Despite the quarter-to-quarter gyrations in economic data, the Fed feels that it has restrictive policy in place,” Mr. Riccadonna from BNP. “It’s really just a matter of waiting for the medicine to kick in, to a full degree.” More

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    Inflation Held Steady in September, While Consumers Spent Robustly

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    Overall inflation stayed at 3.4 percent in September, down from a peak of around 7 percent.Inflation remained cooler in September even as consumers continued to spend at a rapid clip, a sign that the economy is chugging along despite the Federal Reserve’s efforts to contain price increases by weighing on demand.Price increases climbed by 3.4 percent in the year through September, based on the Personal Consumption Expenditures index. That was in line with forecasts, and matched the increase in August.After stripping out volatile food and fuel to get a sense of the underlying trend in prices, a core price measure climbed by 3.7 percent, also in line with economist expectations and down slightly from a revised 3.8 percent a month earlier.Fed officials aim for 2 percent inflation based on the measure released Friday — so prices are still climbing much more quickly than normal. But at the same time, price increases have moderated notably compared to the summer of 2022, when the overall P.C.E. measure eclipsed 7 percent. And encouragingly, inflation has come down even as the economy has remained very strong.Friday’s report provided additional evidence of that resilience. Consumer spending continued to grow at a brisk pace last month, picking up by 0.7 percent from the previous month, and 0.4 percent after adjusting for inflation.The question confronting Fed officials now is whether inflation can slow the rest of the way at a time when consumption remains so strong. Businesses may find that they can charge more if shoppers remain willing to open their wallets.Inflation has slowed over the past year for a number of reasons. Supply chains became tangled during the pandemic, causing shortages that pushed up goods prices — but those have eased. Gas and food prices had shot up after Russia’s invasion of Ukraine, but have faded as drivers of inflation this year.Some of those changes have little to do with monetary policy. But in other sectors, the Fed’s higher interest rates could be helping. Pricier mortgages seem to have taken at least some steam out of the housing market, for instance. That could help by spilling over to keep a lid on rent increases, which are a big factor in key measures of inflation.But overall, the economy has been surprisingly resilient to higher borrowing costs. That is keeping the possibility of a further Federal Reserve rate move on the table, though investors still think one is unlikely.Policymakers have raised interest rates to 5.25 percent, up from near-zero as recently as March 2022. Many have suggested that interest rates are likely either at or near their peak. Officials are widely expected to leave interest rates unchanged at their two-day gathering next week, which wraps up on Nov. 1.But policymakers have been careful not to rule out the possibility of another rate increase, given the economy’s continued momentum.A report yesterday showed that the economy grew at a 4.9 percent annual rate in the third quarter, after adjusting for inflation. That was a rapid pace of expansion, and was even faster than what forecasters had expected.“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.”For now, officials are waiting to see if their substantial rate moves so far will feed through to cool the economy in coming months, especially because longer-term interest rates in markets have moved up notably in recent months. That is making it much more expensive to take out a mortgage or for companies to borrow to fund their operations, and could cool the economy if it lasts. More