Some consumers are making big-ticket purchases like pools and mattresses.

Amid rising inflation and interest rates, Americans are increasingly looking to make more expensive purchases with traditional financing.

This earnings season, executives lament customers’ disinterest in buying big-ticket items for their bedrooms and backyards. This comes at a critical time for the national economy. While the average Joe grapples with the double whammy of high prices and borrowing costs, economists and policymakers are trying to gauge the impact this will have.

This is important because it makes it more likely that consumer spending will finally slow, as experts have long predicted. This means the Federal Reserve could get some long-awaited signs that its interest rate hikes are having the intended effect of tightening the economy, which is good news for investors and consumers. there is a possibility.

“Consumers have limited purchasing power.” number of sleeps CEO Shelly Ibach told analysts late last month. “As a result, consumers continue to scrutinize their spending and make short-term decisions based primarily on need, price, and perceived value, and end up putting off big-ticket, durable purchases. I will.”

Eibach said the mattress industry is in a “historic downturn” and sales are likely to continue declining after an already difficult two years. The Minneapolis-based company had a higher loss per share and lower revenue than analysts surveyed by FactSet expected in the first quarter.

It’s not just Sleep Number. Consumer industry executives have been preparing for, and in some cases predicting, an economic slowdown in recent months. Data from Prosper Insights & Analytics, a partner of the National Retail Federation, shows that American adults are increasingly delaying spending on areas like home improvement and electronics compared to before the pandemic.

“Consumers are still spending, but what we’re sensing now is that they’re becoming a little more cautious,” said Mark Matthews, NRF’s executive director of research. “They’re making important choices about how they spend their money. They’re very price sensitive and we’re definitely back to a situation where consumers are all in on the transaction.”

Shoppers who are unsure whether an expensive purchase will fit within their budget, a feeling that is perhaps more common now that inflation is rising, have previously used credit to I had to rely on paying over a period of time. But as interest rates rose, these options became less popular.

Delinquent credit card bills are also on the rise, indicating that the days of consumers hoarding cash due to the stimulus from the pandemic are over. U.S. households have accumulated more than $70 billion in debt since debt peaked at more than $2 trillion in August 2021, according to data analyzed by the San Francisco Fed. One research group believes credit card debt is on the rise, and the New York Fed reported that Americans collectively owe more than $1 trillion.

The Fed typically raises borrowing levels when prices are rising faster than it believes is healthy for the economy, meaning consumers typically face either higher interest rates or inflation. But right now, annualized inflation is well below peak gains seen early in the pandemic but still well above the central bank’s 2% target.

This is despite the fact that the federal funds rate has been hovering between 5.25% and 5.50% for about 10 months. By comparison, the rate has been at the midpoint of just 0.13% for more than a year during the pandemic aimed at stimulating economic growth.

Depending on where the benchmark interest rate level is, your credit card’s variable interest rate can directly change. Given this situation, Sleep Number’s Eibach said that credit card delinquency is one of the reasons consumers are burdened. Rate hikes from the Fed could also indirectly affect loan providers, pushing up interest rates on new loans such as cars and homes.

Leggett & PlattThe company, which makes bed springs and other parts, is aware of the impact of both interest rates and inflation. Specifically, CEO J. Mitchell Dolloff said that amid price pressure, consumers are focusing on services rather than more expensive, less-essential goods and are increasing their ability to afford basic resources such as food. He said he was shifting spending. He also noted that rising interest rates are a new burden on his shoulders.

wayfair, the furniture e-commerce platform popular among cost-conscious shoppers, said it was struggling to sell its most expensive items. Management warned that this is a trend occurring across furniture retailers.

Retail sales were flat from March to April, even though economists compiled by Dow Jones had expected 0.4% month-on-month growth, according to data released Wednesday by the Commerce Department. . Although this data is adjusted for seasonality, it is not adjusted for inflation, which could provide another signal that consumers are not keeping up with price increases.

Economists are quick to note that what may be bad for consumers in the short term actually has a silver lining in the long term. Shoppers’ inability to pull the trigger on larger purchases, especially coupled with trends such as increased price consciousness, could create enough pressure to rein in inflation and pave the way for interest rate cuts to begin. The Fed’s rationalization could be that it depends on the economy.

There are several other factors at play, said Matthews of the retail industry trade group. The pandemic had a boosting effect, he explained. Consumers stocked up on items that will last them for several years while stuck at home during the government shutdown. This may still be loose.

And to put more emphasis on value, shoppers may wait until Memorial Day or other periods with good deals, Matthews said.

Finally, Matthews said many of these big-ticket items also involve people moving in some way. This is bad news given the housing market, which has cooled due to soaring mortgage rates.

Residential solar power company enphase He said future rate cuts should support demand in states other than California, even if they are less than previously expected. (California has made financing options more “flexible” for installers, CEO Badri Kothandaraman said. California is considered a unique market because of the decline in credit.)

swirl They said rising interest rate levels are a negative pressure on both housing affordability and discretionary spending, which is a factor for consumers considering home appliances such as refrigerators and washing machines. CEO Mark Bitzer said sales in North America were weak during the quarter, and the company continued to focus on promotions to stimulate demand.

This can bode badly for retailers who sell products such as: best buy, is expected to report earnings later this month. Bank of America analyst Robert Ormes told clients this week to predict sales of soft appliances from the Minnesota-based chain.

High interest rates are also hampering home improvement efforts for those who remain in their homes, the paper said. home depot. Treasurer Richard MacPhail said these borrowing costs were creating a holding pattern for projects such as home and bathroom renovations that started in the second half of 2023, although he rated the client as “extremely healthy”. He said there was.

“It’s not that we don’t have the ability to spend,” MacPhail told CNBC. “What they’re telling us is they’re simply giving us higher rates and putting these projects on hold, and it doesn’t seem like the right time to do them.”

As with many other aspects of the economy, this negative trend is felt most deeply by those at the lower end of the income spectrum. This is consistent with the view that the US economic recovery from the pandemic has been “K” shaped, meaning that the experiences of different classes have diverged like the arms of the letter. There is.

Both economic uncertainty and borrowing levels are “weighing” on new pool purchases. pool coop. CEO Peter Urban told analysts last month. However, he said there was a clear divide between income groups, with “challenges remaining” for lower-end products, while there was “steady” demand for higher-priced products.

Troubles among price-sensitive customers are weighing on the Louisiana-based company. Pool Corporation’s sales to independent retail customers decreased by 4% in the first quarter of 2024. This follows an 8% decline seen in the last three months of 2023.

GeneracGenerators are generally considered a luxury item for the financially wealthy. As such, the rate hike likely hasn’t hit customers too hard, CEO Aaron Jagdfeld said, adding that interest rates have been rising for months and some impact may already be being felt. It is said to be expensive.

“These homeowners are less sensitive to changes in interest rates,” Jagdfeld told analysts earlier this month. “Whatever impact rising interest rates have on margins, that end of the market, we think that impact is largely entrenched at this point.”

—CNBC’s Melissa Repko, Gabrielle Fonrouge, Jeff Cox and Robert Hum contributed to this report.