Exploring the Effects of Federal Reserve Rate Cuts on Consumer Spending Patterns

Historical impacts of rate cuts on consumer spending

Historical rate cuts have led to shifts in consumer spending, with increased focus on non-discretionary items due to inflation and economic pressures. Companies like Walmart and Target report consumers prioritizing essential spending, while McDonald's and Amazon note that economic conditions significantly influence disposable income and spending habits.

"Our results of operations are substantially affected by economic conditions, including inflationary pressures, which can vary significantly by market and can impact consumer disposable income levels and spending habits." --- (MCD, sec filing, 2024/Q2)

"In addition, changes in fuel, utility, and food costs, interest rates, and economic outlook may impact customer demand and our ability to forecast consumer spending patterns." --- (AMZN, sec filing, 2024/Q1)

"Many consumer pocketbooks are still stretched, and we see the effect of that in our business mix, as they're spending more of their paychecks on non-discretionary categories and less on general merchandise." --- (WMT, earning call, 2025/Q1)

"This normalization, combined with the cumulative impact of higher prices on consumer budgets, is resulting in continued soft trends in discretionary categories, most notably in Home and Hardlines." --- (TGT, earning call, 2025/Q1)

"Adjusted operating margin for the quarter was nearly 45%. Despite the pressured consumer spending environment we've discussed this morning, top line results generated nearly $3.5 billion of restaurant margin for the quarter, an increase of about 4% in constant currency." --- (MCD, earning call, 2024/Q1)

Sector-specific spending changes post-rate cuts

Post-rate cuts, consumer spending patterns show sector-specific shifts. Disney anticipates a rebound in entertainment spending, while Boeing maintains flexibility amid cautious aerospace demand. ExxonMobil's increased supply may ease price pressures, potentially encouraging spending, and Netflix's shift to lower-priced memberships reflects changing consumer preferences in streaming.

"While pressures from wages, reopening costs and demand impacts are expected to persist in Q4, we do expect year-over-year Experiences operating income growth to rebound significantly in the fourth quarter due to fewer comparability or timing factors." --- (DIS, earning call, 2024/Q2)

"There's nothing that's changing dramatically but we do have flexibility in order for us, 1, to be able to give them schedules that meet their fleet needs, albeit at reduced levels, but also confidence that in the future we're going to get more predictable." --- (BA, conference, 2024/05/23)

"This growth in supply helps reduce rising price pressure, easing the impact on consumers and businesses." --- (XOM, event transcript, 2024/05/29)

"So while it's highly revenue accretive, as you can see in our numbers and our reported growth - strong reported growth in Q1 and outlook for the year, that growth - as we spin-off into new paid memberships, they tend to spin-off into a mix of planned tiers that's a little bit of a lower-price view than what we see in our tenured members. And we're also" --- (NFLX, earning call, 2024/Q1)

"Revenues - Advertising Quarter Ended % Change Better (Worse) (in millions) June 29, 2024 July 1, 2023 Domestic $ 672 $ 762 (12) % International 235 243 (3) % $ 907 $ 1,005 (10) % The decline in domestic advertising revenue was due to a decrease of 15% from lower impressions attributable to a decline in average viewership, partially offset by an increase of 1% from higher rates." --- (DIS, sec filing, 2024/Q2)

Consumer sentiment and inflation effects on spending

Consumer sentiment remains stable as wages keep pace with inflation, but concerns arise as consumers and small businesses deplete excess funds. Despite a slight easing in inflation, consumer prices continue to rise, indicating ongoing financial pressures that could impact spending patterns.

"And on the whole, you can see that on the whole, wages are keeping pace with inflation with the lowest income segment seeing the largest relative gains. So for consumers, to all intents and purposes, we're back to normal with no obvious signs of deterioration." --- (JPM, event transcript, 2024/05/20)

"In the future, if economic conditions deteriorate, it may lead to a further decrease in consumer spending or a deterioration in consumer credit, and net revenues and provision for credit losses in Platform Solutions would likely be negatively impacted." --- (GS, sec filing, 2024/Q1)

"And so we don't know the effect of that. We do know that consumers are running out of excess money. Small businesses are running out of excess money." --- (JPM, event transcript, 2024/05/20)

"While this week’s CPI print shows that inflation eased in April, consumer prices are still on the rise." --- (GS, twitter, 2024/05/17)

"Of our non investment grade exposure, 70% is secure. In the past year, we've clearly seen the impact of higher labor costs, baseline inflation, interest rates along with elevated geopolitical and market uncertainty and through all of this, any stressful losses that we have seen to date have been idiosyncratic or concentrated in sectors that we've been watching closely." --- (JPM, event transcript, 2024/05/20)

Impact of credit availability on consumer spending

Credit availability significantly influences consumer spending patterns. Improved credit quality attracts higher spending customers, as seen with American Express. Additionally, lower delinquency rates and initiatives to enhance credit health, like those from JPMorgan Chase, suggest that favorable credit conditions can boost consumer confidence and spending.

"Starting on the upper left of this slide, our strategy of investing in refreshing and enhancing the value of our premium products on a regular basis has helped us attract millions of new customers with even better credit quality and higher spend than pre pandemic." --- (AXP, investor day, 2024/04/30)

"with our average deposit cost up 10 basis points in the second quarter after increasing 16 basis points in the first quarter.If the Fed were to start cutting rates later this year, we expect that deposit pricing will begin to decline with the most immediate impact from new promotional rates in our consumer business and standard pricing for commercial deposits where pricing moved faster as rates increased, and we would expect betas to also be higher as rates decline.On Slide 5, we highlight loans and deposits." --- (WFC, earning call, 2024/Q2)

"We included a credit card delinquency slide, No. 28 in our appendix, and we’re encouraged by the trend of delinquencies because the late stage increases slowed and early stage delinquencies improved as well, and that leads us to believe we should begin to see consumer net charge-offs start to level out over the next quarter or so. All of this is still well within our risk appetite." --- (BAC, earning call, 2024/Q1)

"Additionally, to support the financial health of consumers as part of this program and beyond, the firm is working with behavioral design nonprofit ideas42 to help consumers better protect and improve their credit, including preparing families for homeownership. Advancing Policy Solutions to Increase Homeownership." --- (JPM, press release, 2024/04/08)

"Additionally, our premium consumer customers have better credit performance with lower delinquency rates than the industry as exemplified by Australia and the U. K. Our product value propositions attract higher spending customers that are willing to pay a fee for the products and services that they enjoy." --- (AXP, event transcript, 2024/04/30)

Current economic conditions influencing consumer behavior

Current economic conditions, including high interest rates and shifts in consumer preferences from goods to services, are significantly influencing consumer behavior. Despite these challenges, consumer spending remains resilient, driving the U.S. economy forward.

"In addition, economic conditions and actions by policymaking bodies are contributing to changing interest rates and significant capital market volatility, which, along with any increases in our borrowing levels, could increase our future borrowing costs." --- (AMZN, sec filing, 2024/Q2)

"The decrease in comparable customer transactions reflects the impact of macroeconomic factors, including the continued shift in consumer consumption trends away from goods and towards services and the impact of a high interest rate environment, pressuring home improvement demand." --- (HD, sec filing, 2024/Q1)

"The value proposition for customers, though, there is pretty tremendous when you think about being able to serve customers that are maybe underserved financially, that arguably skew maybe more to a Walmart versus some of the other retailers." --- (WMT, event transcript, 2024/06/07)

"and productivity. In addition, global economic and geopolitical conditions and additional or unforeseen circumstances, developments, or events may give rise to or amplify many of these risks." --- (AMZN, sec filing, 2024/Q1)

"So that's what really kept the consumer powering, which being 70% of the U. S. Economy kept the U. S. Economy powering, and we haven't seen this recession." --- (HD, conference, 2024/09/04)

Future expectations and consumer spending outlook

Future consumer spending is uncertain, influenced by macroeconomic conditions and specific factors like content strength and pricing strategies. Notably, lower-income consumers are experiencing stress, which may further impact spending patterns in the entertainment sector.

"In particular, our expectations regarding DTC profitability, subscriber levels and ARPU are built on certain assumptions around subscriber additions based on the future strength of our content slate, churn expectations, the financial impact of Disney+'s ad tier, pricing decisions, bundling and availability of Hulu on Disney+, technological advances and paid sharing efforts, our ability to continue to rationalize cost while preserving revenue and macroeconomic conditions, all of which, while based on extensive internal analysis as well as recent experience, provide a layer of uncertainty in our outlook." --- (DIS, earning call, 2024/Q2)

"And we talked about the fact that the lower income consumer is feeling a little bit of stress." --- (DIS, earning call, 2024/Q2)

Regional variations in consumer spending patterns

Regional consumer spending patterns show notable variations, with some areas, like the West Coast, experiencing earlier corrections. Retailers are actively seeking insights into these regional differences, as evidenced by inquiries from suppliers about specific purchasing trends and the impact of customer loyalty programs on spending behavior.

"And if any in spending within the categories reflect anything about whether the consumer is making any incremental changes in their discretionary spending?" --- (WMT, earning call, 2025/Q1)

"So we've heard from some other retailers that maybe West Coast sort of started a correction first, both on the consumer side and your regional performance, how would you describe and are you seeing any of that factor?" --- (HD, conference, 2024/04/04)

"So any more detail in terms of regional variability that you're seeing would be helpful." --- (LOW, earning call, 2025/Q1)

"So one question that we are getting from the suppliers that are subscribing to Luminate is help me understand that if I'm seeing this particular purchasing or trends in terms of sales in one particular region, and it could be timely, let's say that it's seasonal candy might be an example." --- (WMT, conference, 2024/09/11)

"to smaller frequencies from our other customers. They're going to have more spend, more repeat visits, higher penetration into programs like credit, some of our military customers or some of our most loyal customers." --- (LOW, conference, 2024/06/26)