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What recession? It's a summer of splurging, profits and girl power

The numbers are in and the economy is booming. Thank summer travel, high spending and the Barbie bump (Photo by Ian Waldie/Getty Images)
Ian Waldie
/
Getty Images
The numbers are in and the economy is booming. Thank summer travel, high spending and the Barbie bump (Photo by Ian Waldie/Getty Images)

The numbers are in and things look surprisingly rosy for the U.S. economy:

The Federal Reserve is still cautious, but big brands – including Coca-Cola, Hilton and Visa — are singing praises to shoppers seemingly undeterred by companies' raising prices. What's more, Taylor Swift, Beyoncé and Barbie are enticing people to part with their money, bolstering local businesses.

Financial reports by corporations and government data have been painting a picture this month of insatiable American shoppers making companies positively exuberant.

This week, GDP or gross domestic product – considered the measure of economic growth – showed the U.S. economy grew at a rate of 2.4%, much higher than expected. What's fueling it is — you guessed it — spending. Brand after brand this week boosted their earnings forecasts for the year, calling consumers "resilient" in the face of higher prices.

The 'she-conomy' takes center stage

Americans have been scaling back in some categories, including clothing and furniture, but we're splurging on travel. We're also going out to eat, and see concerts and movies. You could call it the Barbie bump.

Plus, Taylor Swift and Beyoncé have been moving markets, quite literally. The Federal Reserve and local officials have reported some of the striking economic effects of Taylor Swift's tour on host cities. One analysis estimates it could generate almost $5 billion in global revenue. When Beyoncé comes to town, hotels, hair stylists and bartenders all get a boost, according to Yelp.

Southwest Airlines this week reported record revenue. Hilton executives said people were spending more across all its hotels, from the humbler Garden Inn to the upscale Waldorf Astoria, with business travel picking up and overall demand exceeding available rooms. Hotel prices have been setting records too.

"Not to be a Pollyanna at all, it all feels pretty good. ... I think the rest of this year's going to be very solid," Hilton CEO Chris Nassetta told analysts on Wednesday. "And I think next year will be a darn good year."

Companies test price limits in a 'Hot Profit Summer'

Higher prices showed up as good news in corporate reports across the board. Among them was Hershey (whose brands include Reese's and Skinny Pop). The company said people were buying slightly fewer snacks and candies, butits profits rose almost 30% anyway. A similar thing happened at Procter & Gamble (which makes Tide detergent and Crest toothpaste) and Colgate-Palmolive.

Coca-Cola, like rival Pepsi, reported that shoppers remained loyal to brand-name soda despite several rounds of price hikes.

Corporate execs offered many explanations for those hikes, including higher wages and other costs, such as sugar and corn syrup. Chipotle said it was still spending more on beef, tortillas, salsa, beans and rice, and did not rule out additional price hikes later in the year.

Is a spending hangover on the way?

So how are shoppers paying for all of this? Part of it is going on credit cards; the Federal Reserve Bank of New York saying credit card debt is at a record high. Banks report families are dipping into or even draining their pandemic-era savings.

But there's more to the story: A lot of workers have gotten raises recently. For the first time in months, our wages are outpacing inflation, as employers continue to compete for workers. This, in fact, raises the specter of the notorious wage-price spiral, with companies citing higher labor costs as a major cause of higher prices, and then workers pointing to those rising prices as proof they need higher pay.

Still, it seems like the pace of those raises is slowing down, which could signal that the labor market is softening. This is good news for inflation – which is now at 3% versus last year's 9% – but not enough for the Fed to ease up. It raised interest rates again this week, to a 22-year high.

"Inflation has moderated somewhat since the middle of last year," Fed Chair Jerome Powell told reporters, explaining the decision. "Nonetheless, the process of getting inflation back down to 2% has a long way to go."

While the economy has remained strong amid months of interest rate hikes — and the unemployment rate near a record low at 3.6% — the effects of the Fed's actions could still be coming.

If they can cool off the economy just enough to stop companies from raising prices, but not so much that they lay off workers, the Fed will have achieved what economists call a soft landing.

"We're not there yet," said KPMG Chief Economist Diane Swonk. "The hope is certainly high that we could get there."

NPR's David Gura contributed to this report.

Copyright 2023 NPR. To see more, visit https://www.npr.org.

Alina Selyukh is a business correspondent at NPR, where she follows the path of the retail and tech industries, tracking how America's biggest companies are influencing the way we spend our time, money, and energy.
Stacey Vanek Smith is the co-host of NPR's The Indicator from Planet Money. She's also a correspondent for Planet Money, where she covers business and economics. In this role, Smith has followed economic stories down the muddy back roads of Oklahoma to buy 100 barrels of oil; she's traveled to Pune, India, to track down the man who pitched the country's dramatic currency devaluation to the prime minister; and she's spoken with a North Korean woman who made a small fortune smuggling artificial sweetener in from China.