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Consumer data shows mixed messages

Consumer sentiment falls on inflation worries but spending remains strong

Before getting into what’s happening in CPG supply chains, here’s something for your calendar: I host the next quarterly The Stockout webinar on Dec. 6 at 2 p.m. ET. Here’s the link to register. Last quarter, there was a great turnout, and the discussion was enhanced by the many participants who asked thoughtful and pertinent questions. My hope for the upcoming webinar is the same.

Inflation is dragging down consumer sentiment. So far in The Stockout, I have mostly discussed inflation in the context of how it is putting pressure on CPG companies’ costs and margins as CPG companies’ costs have often risen faster than prices to consumers. But it’s becoming more clear that inflation is a meaningful risk to demand for consumer goods. 

There were some interesting, if perhaps intuitive, highlights from the latest University of Michigan Surveys of Consumers. According to the study, consumer sentiment fell in early November to its lowest level in a decade due to escalating inflation and a growing belief that no effective policies have been developed to reduce the damage caused by surging inflation. Nominal income gains were reported by survey participants, but half of all families anticipated reduced real incomes next year. 

That bodes poorly for consumer packaged goods, particularly the more expensive national brands that took share during the pandemic. Industry participants have been focused on inflation in ingredients, packaging, manufacturing, labor and transportation costs all year, but I believe that consumers are relatively new to noticing inflation in their own daily lives since such a large number of everyday household items (such as those manufactured by Procter & Gamble and Kimberly-Clark) experienced significant price increases that finally started hitting shelves in September. 

Seemingly on the contrary, CPG demand in August and September reached a new high, topping the spike of March 2020, according to the Consumer Brands Association (CBA). Specifically, CPG sales climbed 8.3% y/y in the third quarter, which also represented a 1.8% increase from the second quarter. In its latest CPG Economic Pulse report, the CBA projects revenue growth for the year of between 10% and 11.5%. The CBA acknowledges the 30-year high in inflation in consumer prices that was just reported by the Bureau of Labor Statistics, but it hasn’t seen evidence of consumers pulling back on spending yet. 

The Bank of America credit card data also shows evidence that consumers continue to spend freely. According to Bank of America, total card spending is still running up 16% year-over-year and is up 23% from this time two years ago. That said, it did say that grocery sales declined in the most recent week after adjusting for inflation.  

Those seemingly contradictory reports beg the questions: Is it simply a matter of consumers’ actions speaking louder than their words? Or is sentiment a leading indicator of how consumers will behave in the upcoming year, particularly if half or more of U.S. households experience income growth that fails to keep pace with inflation?

Food Dive published an article with several analysts’ perspectives on what’s behind the recent trend of slowing sales in the plant-based meat category. Their explanations include individual company market share losses to new entrants, the novelty of plant-based meats wearing off, consumers’ return to eating at restaurants, product oversaturation and the lack of availability of shelf space to accommodate so many new products. 

For those interested in the rail industry, I encourage you to read the FreightWaves article on RailTrends, a top-tier conference focused on the freight rail industry. The article has some great quotes on rail intermodal from Larry Gross, the president and founder of Gross Transportation Consulting. According to Gross, rail intermodal posted its lowest share of freight movement in the third quarter in almost 12 years. In addition, intermodal has given back all of the market share gains it has achieved since 2009. Far from being a relief valve for a tight truckload market, railway network imbalance issues, equipment shortages, port and terminal congestion and labor shortages have all contributed to intermodal congestion. 

Fortunately, domestic truckload-based intermodal providers Schneider National and Hub Group both reported an improvement in railway fluidity on their respective third-quarter earnings calls. In addition, I view the recent increase in daily domestic intermodal volume in November (up 2% from October and up 10% from August-September) as evidence of a partial alleviation in intermodal network congestion.    

Intermodal volume typically peaks in October, but this year, domestic intermodal volume (blue line) continued to increase throughout November.

 Refrigerated remains the most challenging truckload mode for shippers. Refrigerated carriers are being less compliant than carriers in other segments of truckload, rejecting 39% of tendered loads compared to dry van and flatbed carriers, which are rejecting 20% and 28% of tendered loads, respectively. Refrigerated freight seasonality is more extreme than other modes and, so far, there is little evidence that refrigerated capacity will loosen next year.   

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Michael Baudendistel

Mike Baudendistel is the Head of Intermodal Solutions at FreightWaves and author of The Stockout, focusing on the rail intermodal, CPG and retail industries. Prior to joining FreightWaves, Baudendistel served as a senior sell-side equity research analyst covering the publicly traded railroads, and companies that manufacture and lease railroad equipment, trucks, trailers, engines and components. His experience following the freight transportation industry also touched the truckload, Jones Act barge and domestic logistics industries. He is a CFA Charterholder.