There’s good news on the inflation front: Annual price growth fell to its lowest pace in nearly two years, the Commerce Department reported Friday.
But for consumers, the lengthy spell in the crossfire of persistently high prices and rising interest rates has taken its toll.
Inflation-adjusted consumer spending was flat in March, marking the fourth time in five months that expenditures held steady or declined. The pattern makes January’s spending burst look more and more like a one-off spurt.
“The consumer engine is sputtering,” said Gregory Daco, chief economist at EY.
A softening has been expected just given the current economic conditions, coupled with a natural recalibration from post-lockdown splurges. However, economists say it is unclear whether this consumer “retrenching” is a return to more typical spending patterns or a perhaps a harbinger of a recession.
“The full effect of recent banking-sector turmoil and the associated tightening in financial conditions has yet to be felt,” Daco noted. “Further deterioration in the job market — the last remaining leg propping up the consumer — is bound to accelerate the downshift in consumer spending in the coming months. This should lead to the emergence of recessionary conditions by midyear.”
Consumers continue to shell out for experiences, be they pricey concert tickets, trips, or restaurant visits, said Amanda Belarmino, assistant professor of hospitality at the University of Nevada Las Vegas. At the same time, they’re cutting back elsewhere, holding back on those big-ticket items, trading down to private label and lopping off some of the in-home subscription services.
“It seems like consumers are continuing to make these trade-offs of what they find more valuable,” she said.
The balanced duality of hot dogs and architecture
On the corner of West 72nd Street and Broadway in Manhattan, a longtime hawker of hot dogs is having its best spring in its 50-year history.
Gray’s Papaya, known for its economical franks and a “Recession Special” that has persisted through even the best of times, has found itself in an opportune place during a period when consumers are spending more on experiences but also seeking out comforts and deals amid high inflation.
The hot dog restaurant has been hit by rising prices, like everyone else, but there has been a concerted effort to hold off as long as possible in passing those costs along to customers, co-owner Rachael Gray said.
“We have not raised our prices in seven or eight years, and I’m committed to not raising prices right now,” she told CNN. “I think people need a spot out there that they can go to and get something hearty for not a lot of money.”
The “Recession Special” — launched by Gray’s husband, Nicholas, in the early ’80s as a tongue-and-cheek retort to the economic downturn of the time — is still going strong, although the original $1.95 deal hasn’t been immune to inflation. The combo meal, which consists of two franks and a medium tropical drink for $6.95, remains a top-seller, accounting for at least half of overall sales, Rachael Gray said.
“He said he thought it would bring some attention to the store, which it did immediately,” she said. “And he kept it ever since. Through some of the greatest economic booms we’ve seen, we’ve had the recession special.”
The original special is now joined by two others, a one-dog and three-dog deal that account for nearly another third of sales.