Inflation and recession fears are hitting some industries harder than others

A woman pushes a shopping cart through the grocery aisle at Target in Annapolis, Maryland, on May 16, 2022, as Americans brace for the shock of the summer tag as inflation continues to grow.

JimWatson | AFP | fake images

People still seem willing to pay to travel, go to the movies and have a drink or two, even as rising prices and recession fears hold them back in other areas.

The way people spend their money is changing as the economy slows and inflation drives up prices everywhere, including gas stations, grocery stores and luxury retail stores. The housing market, for example, is already feeling the pinch. Other industries have long been considered recession-proof and may even be enjoying a downturn as people start to go out again after sheltering in place during the pandemic.

Still, buyers around the world feel pressured. In May, an inflation metric that tracks the prices of a wide range of goods and services jumped 8.6% from a year earlier, the biggest jump since 1981.. Consumer optimism about their finances and overall economic sentiment fell to 50.2% in June, its lowest level on record, according to the University of Michigan’s monthly index.

As gas and food prices rise, Brigette Engler, an artist who lives in New York City, said she drives to her second home upstate less often and cuts back on eating out.

“Twenty bucks seems extravagant right now for lunch,” he said.

Here’s a look at how different sectors are doing in the slowing economy.

Movies, experiences that endure

Concerts, movies, travel and other experiences people missed out on during the height of the pandemic are among the industries enjoying strong demand.

living nation Entertainmentowner of concert halls and Ticketmaster, has yet to see people’s interest in attending concerts wane, CEO Joe Berchtold said at the William Blair Growth Stock Conference earlier this month.

In movie theaters, blockbusters like “Jurassic World: Dominion” Y “Top Gun: MaverickThey have also achieved strong box office sales. The movie industry has long been considered “recession-proof,” as people who forgo pricier vacations or recurring Netflix subscriptions can often still afford movie tickets to escape for a few hours.

Alcohol is another category that is generally protected from economic downturns, with people heading back to bars after drinking more at home during the early days of the pandemic. Even as brewers, distillers and winemakers raise prices, companies are betting that people are willing to pay more for better-quality alcohol.

“Consumers continue to trade up, not down,” Molson Coors drink CEO Gavin Hattersley said on the company’s earnings call in early May. It may sound counterintuitive, but he said the trend is in line with recent economic downturns.

Alcohol sales have also been sheltered in part because prices have not risen as fast as the prices of other products. In May, alcohol prices rose about 4% from a year earlier, compared to the 8.6% jump in the general consumer price index.

Big airlines like Delta, American Y United They also predict a return to profitability thanks to an increase in travel demand. Consumers have largely digested higher fares, which have helped airlines cover the rising cost of fuel and other expenses, though national reserves have decreased in the last two months.

It’s unclear if the race back to the skies will continue after the spring and summer travel rush. Business travel typically picks up in the fall, but airlines may not be able to count on that as some companies look for ways to cut expenses and even announce layoffs.

People’s desire to go out and socialize again is also driving products like lipstick and high heels that have been shelved during the pandemic. That recently helped sales at retailers, including macy’s Y ultra beautywhich last month boosted its full-year earnings forecast.

Luxury brands like Chanel and Gucci are also proving more resilient, with wealthier Americans not being as affected by rising prices in recent months. His challenges have been more concentrated in China of late, where pandemic restrictions persist.

But the fear is that this dynamic could change quickly and the short-term profits of these retailers could evaporate. More than eight in 10 American consumers plan to make changes to cut their spending in the next three to six months, according to a survey by the NPD Group, a consumer research firm.

“There is a tug-of-war between the consumer’s desire to buy what they want and the need to make concessions based on higher prices hitting their wallets,” said Marshal Cohen, senior retail industry adviser at NPD.

Houses, expensive items squeezed

The once red-hot real estate market is among those clearly affected by the slowdown.

Growing Interest rates they have reduced the demand for mortgages, which is now about half of what it was a year ago. Homebuilder sentiment has fallen to the lowest level in two years after falling for six consecutive months. Real estate companies red fin and Compass announced layoffs earlier this week.

“With May demand 17% below expectations, we don’t have enough work for our agents and support staff,” Redfin CEO Glenn Kelman wrote in an email to employees that was later posted on the company’s website.

For the retail sector as a whole, data from the Commerce Department also showed a surprising overall drop of 0.3% in May from the previous month. That included drops at online retailers and miscellaneous store retailers, such as florists and office supplies.

And while demand for new and used cars remains strong, auto industry executives are beginning to see signs of potential trouble. With the cost of new and used vehicles rising in double digits over the past year, car and other motor vehicle dealers saw sales decline 4% in May from the prior month, according to the Department. US Department of Commerce

Ford Engine Chief Financial Officer John Lawler said this week that auto loan delinquencies are also starting to rise. Although the increase could indicate tough times ahead, he said it’s not yet a concern, as delinquencies had been low.

“It looks like we’re regressing further towards the mean,” Lawler told a Deutsche Bank conference.

The restaurant industry is also seeing signs of potential trouble, though how restaurants are affected could vary.

Fast food chains have also done better in economic downturns, as they are more affordable and entice diners with promotional offers. Some restaurant companies are also betting that people will continue to dine out as grocery prices rise faster.

The cost of food away from home rose 7.4% during the 12 months ending in May, but food prices at home rose even faster, soaring 11.9%, according to the Bureau of Labor Statistics. . International Brands Restaurant CEO Jose Cil and Wendy’s CEO Todd Penegor are among fast-food executives who have emphasized the gap as an advantage to the industry.

But mcdonald’s Chief Executive Officer Chris Kempczinski said in early May that low-income consumers began ordering cheaper items or reducing the size of their orders. As the largest restaurant chain in the US by sales, it is often considered an industry benchmark.

On top of that, traffic in the broader restaurant industry slowed to its lowest point of the year in the first week of June, according to market research firm Black Box Intelligence. That was after the number of visits also slowed down in May, although sales increased 0.7% due to higher spending per visit.

Barclays analyst Jeffrey Bernstein also said in a research note on Friday that restaurants are accelerating discounts, a sign they expect same-store sales growth to slow. Among the chains that have introduced new offers to attract diners are Dominos Pizzaoffering half-price pizzas, and Wendy’swho brought his $5 Biggie Bag meal.

Among those struggling to adjust to a shift in shopper behavior are mass-market retailers like Target and Walmart, which have issued cautious guidance for the coming year.

Target warned investors earlier this month that its fiscal second-quarter profit would take a hit as it discounts people who bought during the pandemic but no longer want it, such as small appliances and electronics. The big retailer is trying to make room on its shelves for products in demand right now: beauty products, home essentials and back-to-school items.

Chief Executive Officer Brian Cornell told CNBC that the company’s stores and website continue to see heavy traffic and “a very resilient customer” overall, despite changing shopping preferences. Rival walmart has also been discounting less-desirable items like clothing, though the retail giant said has been gaining share in the grocery store as buyers look to save.

— Leslie Josephs, Lauren Thomas, Michael Wayland, John Rosevear, Sarah Whitten and Melissa Repko contributed reporting.

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