Fears of inflation and recession are putting some sectors under more pressure than others

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

Jim Watson | AFP | Getty Images

People still seem willing to travel, go to the movies and have a drink or two, even as rising prices and fears of recession are causing them to withdraw elsewhere.

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 outlets. The housing market, for example, is already feeling the effects of the crisis. Other industries have long been considered recession-proof, and may even be enjoying a bump if people start going out again after hunkering down during the pandemic.

Still, buyers everywhere feel pressured. In May, an inflation gauge that measures prices for a wide range of goods and services rose 8.6% from a year earlier, the biggest jump since 1981. Consumer optimism about their finances and sentiment about the broader economy fell to 50.2% in June, the lowest level on record, according to the University of Michigan monthly index.

As gas and food prices rise, Brigette Engler, a New York City-based artist, said she drives less often to her second home upstate and eats out less.

“Twenty dollars for lunch seems extravagant at this point,” she said.

Here’s a look at how various sectors are faring in the slowing economy.

movies, experiences hold

Concerts, films, travel and other experiences missed by people at the height of the pandemic are among the industries enjoying strong demand.

Live Nation Entertainment, which owns concert venues and Ticketmaster, has yet to see people’s interest in going to concerts wane, CEO Joe Berchtold said earlier this month at the William Blair Growth Stock Conference.

In theaters, blockbusters like Jurassic World: Dominion and Top Gun: Maverick have also posted strong box office sales. The movie industry has long been considered “recession-proof” because people who don’t want to take pricier vacations or recurring Netflix subscriptions can often still afford movie tickets to escape for a few hours.

Alcohol is another category that’s generally sheltered from economic downturns, and people are returning to bars after drinking more at home in the early days of the pandemic. Even as brewers, distillers and winemakers raise prices, companies are betting that people will be willing to pay more for better-quality alcohol.

“Consumers continue to trade up, not down,” said Gavin Hattersley, CEO of Molson Coors Beverage, when announcing the company’s earnings in early May. It might seem counterintuitive, but he said the trend is consistent with recent economic downturns.

Alcohol sales have also been shielded in part because prices have not risen as rapidly as the prices of other commodities. In May, alcohol prices rose about 4% year-on-year, compared with the 8.6% increase in the consumer price index.

Big airlines like Delta, American and United are also forecasting a return to profitability thanks to rising travel demand. Consumers have largely digested the higher fares, helping airlines cover rising costs for fuel and other expenses, despite domestic bookings falling over the past two months.

It’s not clear 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 it as some companies look for ways to rein in spending and even announce layoffs.

People’s desire to get back out and socialize is also fueling products like lipstick and high heels that have been put away during the pandemic. That recently helped sales at retailers like Macy’s and Ulta Beauty, which last month raised their full-year earnings forecasts.

Luxury brands like Chanel and Gucci are also proving more resilient, with wealthier Americans not having been as hard hit by rising prices in recent months. Her challenges have recently been more focused on China, where pandemic restrictions remain in place.

However, there are concerns that this dynamic could change quickly and these retailers’ short-term profits could be wiped out. According to a survey by the NPD Group, a consumer research firm, more than eight in 10 US consumers plan to make changes to reduce spending over the next three to six months.

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

Houses, big-ticket items squeezed

The once scorching housing market is one of those clearly affected by the slowdown.

Rising interest rates have dampened mortgage demand, which is now about half what it was a year ago. Builder sentiment has fallen to its lowest level in two years after falling for six straight months. Real estate firms Redfin 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 staff, which was later published on the website of the company company was published.

For broader retail, Commerce Department data showed a surprise month-on-month decline of 0.3% in May overall. These included declines at online retailers and various retail outlets such as florists and office supplies.

And while demand for new and used cars remains strong, auto industry executives are starting to see signs of potential trouble. As the cost of new and used cars has risen by double digits over the past year, auto and other automotive dealerships saw sales in May decline 4% from the previous month, according to the US Commerce Department.

Ford Motor CFO John Lawler said this week that auto loan delinquencies are also starting to rise. Though the surge could portend tough times, he said it’s not a cause for concern just yet as arrears are small.

“It looks like we’re going back more toward the mean,” Lawler said at a Deutsche Bank conference.

The restaurant industry is also seeing signs of potential troubles, although the impact on restaurants may vary.

Fast food chains have traditionally fared better in economic downturns because they are more affordable and attract diners with special offers. Some restaurant companies are also betting that people will continue to eat out as long as food prices rise at a faster rate.

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

But McDonald’s CEO Chris Kemczinski said in early May that low-income consumers have started ordering cheaper items or reducing the size of their orders. As the top-selling US restaurant chain, it is often seen as a pioneer in the industry.

Additionally, traffic in the broader restaurant industry slowed to its lowest level for the year in the first week of June, according to market research firm Black Box Intelligence. That was after visits also slowed in May, although sales were up 0.7% on higher spend per visit.

Barclays analyst Jeffrey Bernstein said in a research note on Friday that restaurants are accelerating discounts, a sign they expect slower same-store sales growth. Chains that have rolled out new deals to lure diners include Domino’s Pizza, which is offering half-price pizzas, and Wendy’s, which has brought back its $5 Biggie Bag meal.

Among those scrambling to adapt to changing shopper behavior are bulk retailers like Target and Walmart, which have issued cautious forecasts for the coming year.

Target warned investors earlier this month that its earnings would take a hit in the fiscal second quarter as it discounts people who bought during the pandemic but don’t want anymore, like small appliances and electronics. The big-box retailer is trying to make room on its shelves for the products it needs now: beauty products, home goods and school supplies.

CEO Brian Cornell told CNBC that despite the shift in their buying preferences, the company’s stores and website are still busy and overall “a very resilient customer.” Rival Walmart has also discounted less desirable items like clothing, although the retail giant said it’s gaining stakes in groceries as shoppers look to save.

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

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