VSCO - Deeper dive into J.P. Morgan's State of the U.S. Consumer report: A declining middle class

2023-09-28 14:00:35 ET

J.P. Morgan’s September 2023 Cost of Living Survey, released Thursday, revealed six key takeaways on consumer behavior after interviewing more than 1,000 U.S. consumers.

First, more than half of U.S. low-to-middle-income consumers interviewed said that their income has not increased in the last six months.

This shows “a cooling employment picture and low to middle income excess savings” that would constrain the recovery of stocks such as ( DG ) and ( BIG ).

Second, credit card debt, which today has an average of 20.7% interest, is rising at a faster pace in more than 20 years. Credit debt is at 16% year-over-year, compared to 6% in 2019.

Forty-five percent of the survey respondents said they plan to reduce their credit card spending because of the increased cost of borrowing. For department stores such as ( JWN ), ( M ), and ( KSS ), about 3% of revenues on average flow through at a 100% rate to EBIT.

Third, there is a significant apparel trade-down, from luxury to lower-cost.

Forty-three percent of consumers interviewed said they would cut down on apparel and footwear spending by choosing cheaper items from the same brand, shopping at an off-price retailer, such as ( M ), ( BURL ) or ( TJX ), or choosing cheaper brands. These results are 10 points higher than the responses six months ago.

The fourth takeaway was that casual wear and athletic wear rank first in the prioritized apparel category, with 63% of consumers noting that those types of wear are the most needed today.

“This underscores the expanded TAM (total available market) opportunity for sportswear/athleisure, representing 35.4% of total U.S. apparel and footwear spending versus 43.1% pre-pandemic,” the report said, “with ( LULU ) and ( NKE ) top multi-year beneficiaries.”

Fifth, the higher cost of mortgages has affected 71% of respondents, who said they would cut back on overall spending as interest rates average today at 7.2%, compared to 3.9% in 2019.

Headwinds are projected to broaden, according to J.P. Morgan’s view, to large-ticker purchases with ( BC ) and ( BIG ) topline performance “historically the most inversely correlated with higher interest rates,” the report said.

Sixth and last, 67% of consumers interviewed said they are worried about making timely student loan payments, which will restart on Oct. 1.

J.P. Morgan research analysts said that stocks such as ( GPS ), ( VFC ), ( FL ), ( VSCO ), ( BBWI ), and ( KSS ) are the most “at risk” with the highest concentration of student share, with people of ages 30 through 39, and the highest student loan debt-to-income ratios, with people having salaries of $60,000 through $90,000.

More on U.S. consumer trends:

• J.P. Morgan’s Cost of Living Survey shows a crumbing low to middle class wary of spending
• Consumer confidence has cracked over the last month - these retail stocks are already down 20%
• The next headache for retail - overtime pay rules may be changed

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