Partner & Managing Director, Chicago
Post-pandemic, slowing growth and the need to drive productivity to maintain profitability are top concerns. Ongoing supply chain and labor difficulties increase the challenges for leaders of consumer products businesses.
Consumers have, to a large degree, rallied through rising interest rates and surging inflation, yet their resilience is being severely tested, and a widespread spending pullback may materialize as many consumers begin to trade down.
Here we provide a rolling quarterly check on year-on-year changes in retail sales, consumer sentiment, company performance, inventory movement, and other supply chain health indicators.
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Optimism for H2 2023 remains despite reduced manufacturing output, transportation costs, and inventory turns
Declining consumer demand – largely driven by pressure from rapidly rising household debt-income levels and ongoing consumer price inflation – has led to reduced manufacturing sentiment (PMI -18%), an easing in the supply chain (trucking rate -19%), and inventory turns (down YoY across all CP sectors). However, companies remain optimistic about 2023 and anticipate a solid second half, building up inventory levels across all CP sectors, despite conflicting economic signals. A strong labor market offset by rising consumer loan delinquencies; better-than-expected earnings despite lower guidance; and recent Fed hawkishness all lead to the question of whether the economy or inflation will fall faster. Will the recession that seems to be "always six months away" ever come? If prior cycles are any guide, the answer is likely yes, and companies should plan accordingly.