Stress from rising energy and food prices has begun to manifest itself in other ways as well, with AT&T Inc. saying last week that more customers were putting off paying their phone bills.
President Joe Biden has argued that despite rising inflation pressures, the economy overall remains in good shape, pointing to persistent employment gains. In June, US nonfarm payrolls rose by 372,000 jobs, more than forecast. And big companies are still hunting for workers: Defense giant Raytheon Technologies Corp. said it was having trouble filling 5,000 well paid engineering positions.
“We are struggling in that regard,” Raytheon CEO Greg Hayes said on an earnings call. “The labor market is so tight in this country.”
Nevertheless, some cracks have begun to appear in the job market as well. Several big technology companies have said they plan to pause hiring, and others are rethinking hiring sprees that they embarked on during the pandemic. Shopify Inc., a facilitator of online spending, is planning to cut 10% of its workforce, it said on Tuesday. If more companies tap the brakes on job postings or begin to thin their ranks, that could further darken the mood for shoppers.
Whittling Inventories
Earnings reports later this week from Kraft Heinz Co., Procter & Gamble Co. and Colgate-Palmolive Co. will provide more clues on consumers’ health. Southwest Airlines Co. will also release results, as carriers struggle to take advantage of a surge in demand for flights. Big airlines have been forced to slow expansion plans amid flight disruptions tied in part to labor shortages and air-traffic control issues.
Large retailers including Walmart and Target Corp. won’t report full results until next month. Both companies misjudged the speed and scope of shifts in demand, underscoring the difficulty of anticipating consumer swings as the pandemic abates.
Target found itself trying to unload a surfeit of kitchen appliances and patio furniture this spring amid signs that eating in and pandemic-era staycations are now passe. The Minneapolis-based retailer cut its outlook last month and outlined costly steps to whittle inventories, presaging Walmart’s move this week.
Walmart says it’s gaining market share in groceries as more shoppers seek out its low prices. But that creates a financial drag of its own, since food and consumable goods tend to have lower profit margins than general merchandise. And with food inflation in the double digits, there’s less money left over for everything else.
“The increasing levels of food and fuel inflation are affecting how customers spend,” CEO Doug McMillon said in a statement. “We’re now anticipating more pressure on general merchandise in the back half” of the year.
This article was provided by Bloomberg News.