The state of consumer spending in the United States is hard to call right now. On the one hand, inflation is hitting some consumers hard. The University of Michigan’s Consumer Sentiment Index fell to an all-time low in June, though it improved slightly in July, data on Friday showed. The Bureau of Economic Analysis reported on Friday that inflation-adjusted real spending rose only 0.1% as consumers barely kept pace with inflation. Mass-market retailers have reported that shoppers are retreating to lower-margin items, with Walmart – often seen as a supporter of the overall economy – cutting back its profit guide. On the other hand, high-end retailers and restaurants, along with card issuers, say spending is still growing despite higher prices. Either way, it’s definitely an important metric to watch when assessing recession risk: consumers accounted for 68% of total economic activity in the first quarter. “U.S. consumer health comments continue to fluctuate between [and] healthy balance sheet “and” weak and pressured by inflation. “Investors are wondering which is true,” Bank of America said. What does all of this mean for consumer-related companies, and will they survive the recession? The Bank of America says the most important indicator when looking at consumer strength is the unemployment rate. “Overall, as long as consumers have a job, we expect them to make monthly payments and not have to pay off card debt impacting their credit score),” Bank of America analysts wrote. wrote in a July 27 note. The bank noted that, earlier this month, major pure-play card issuers such as American Express, Discover, Capital One and Synchrony reported second-quarter earnings generally for saw strong buying volume and better-than-expected credit growth. As a result, Bank of America has a buy rating on American Express, giving it a price target of $183 – up about 19% from current prices. That’s the basis it says an approximate 16x multiple of its 2023 earnings-per-share forecast. It also has a “buy” recommendation on Capital One Financial, with a price target of $144, representing an increase of about 31%. Separately, Bernstein analysts assessed the impact of a possible recession in the United States on the consumer clones they include. “US consumer staples are often seen as ‘defensive’ safe havens, benefiting from flight to safety during times of economic stress,” they wrote in a note. report this month. The bank says Colgate and Coca-Cola have some exposure to the best “defensive” category. “In the beverage sector, the data shows us that cola carbonate has performed well through previous recessions – good news for Coca-Cola,” Bernstein writes. “We found that pet food and dental care is one of the best categories in history, benefiting Colgate.” Bernstein also identified global brands as “best positioned” if an economic downturn sees consumers cut back on spending. It chose Swiss chocolate maker Lindt and cosmetics company L’Oreal, giving them a better rating. “These are brands with high growth rates, sustained volume growth, and strong cross-price elasticity,” the Bernstein analysts wrote. The company has given L’Oreal a price target of 435 euros ($444), up about 18% from current levels, and Lindt a price target of 111,000 Swiss Francs ($116,268), making it less than 2 percent up. %.
