Consumers Have Had Enough

The average consumer can’t take it anymore. 

That’s the realization many retailers are starting to come to over the past few months. See, just a few years ago, Americans were flush with cash thanks to stimulus checks, and many were looking to burn that extra money. 

Retailers, car companies, tech companies, and many others enjoyed the spending sprees people went on. Profits were up, sales stayed strong, and the CEOs were happy. 

Consumers Have Had Enough.

But now that’s all reversing course. Discretionary spending is nosediving as consumers deal with a range of factors causing them to tighten their belts across the board. It started late last year but has ramped up in recent months as we continue to grapple with this stubborn inflationary environment. 

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Now, retail giants like Target, Walmart, and Home Depot, which did especially well during the pandemic, are seeing a reversal of fortunes. As consumers reprioritize how they spend, these companies are having to cut earnings forecasts. 

Between the rising cost of living and the rising cost of basics like food, there’s not much left over to spend on things like furniture and gadgets. People see the writing on the wall that this environment we’re in isn’t likely to improve any time soon. They’re preparing accordingly with what little money they have left after the necessities are covered. 

And even spending habits on those necessities have shifted. Because of rising costs, consumers are switching to cheaper brands and only buying the absolute essentials. As this environment persists, this is behavior that’s going to become more deeply ingrained. It could reach a point where it will be the dominant way of thinking for the next few years, which is a bad sign for retailers and the economy as a whole. 

Instead of spending with those retailers, some Americans are socking away extra cash to weather the storm they see coming in the next few months. 

For others, the situation is even more dire. Instead of taking a little leftover cash and putting it away, they’re having to rely on credit cards to make ends meet. The result is climbing balances on cards that are carrying increasingly high financing rates. As of the time I’m writing this, those balances, collectively, equal about $986 billion. The average interest rate on that is almost 21%. 

So, that’s another obstacle to economic stability that the country will be facing. Doubly true if an increasing number of people have a hard time paying those growing credit card balances down. There’s still the strong jobs market offering some ray of hope, but how long will that last? 

These are all things to think about as we head toward the end of the second quarter amid a possible Fed interest rate pause. 

So the takeaway is that liquidity is going to be extremely important in the short term. 

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It’s a necessity for making sure you stay afloat, of course, but it will also allow you to take advantage of the turbulence we’re sure to see in the coming months. 

As the economy stalls, certain sectors of it will climb for different reasons. By preparing now, you can take advantage of those budding markets and stay ahead of the larger downturn. 

Building your wealth is all about having the kind of portfolio that can withstand anything. With the right guidance, you can be fully prepared for the changes to come.

Ryan Stancil

Ryan Stancil
Editor, Daily Profit Cycle