Corporate executives are taking a dim view of their prospects, with a majority now expecting a recession ahead, according to a closely watched business survey released Wednesday.

The Conference Board measure of CEO sentiment showed that 57% of respondents expect inflation to come down “over the next few years” but the economy to sustain a “very short, mild recession.”

Those results reflect an overall pessimistic tone from the quarterly gauge, as the board’s Measure of CEO Confidence fell to 42, a steep drop from the first quarter’s 57 and the lowest since the early days of the Covid pandemic. Anything below 50 represents a negative outlook, as the number measures the level of respondents expecting expansion over those seeing contraction.

That reading “is consistent with slowing for sure,” Roger Ferguson, vice chairman of the Business Council and a trustee of The Conference Board, told CNBC’s “Squawk Box” in an interview following the report’s release.

“All of this is telling us that the combination of inflation that is much too high, to quote [Federal Reserve Chairman] Jay Powell, wages that are increasing but not keeping up with inflation, and then the inability to pass all this along is creating a very, very challenging dynamic,” said Ferguson, a former Fed vice chair.

The recession expectation reading wasn’t the only bad news out of the report.

Just 14% of CEOs reported that business conditions had improved in Q2, down from 34% in the first quarter. Sixty-one percent said conditions were worse, compared with 35% in the prior reading. Only 19% see improvement ahead, down from 50%, while 60% expect things to worsen, up from 23%.

One piece of good news was that 63% expect to hire in the next quarter, down only slightly from 66% in Q1. However, some 80% said they were having problems getting qualified workers, down just slightly, while 91% see wages rising by more than 3% over the next year, up from 85% in the first three months of the year.

Also, just 38% expect to increase capital spending, a sharp decline from 48% previously. Some 20% see stagflation conditions of low growth and high inflation.

Powell said in an interview Tuesday with The Wall Street Journal that he remains determined to tamp down inflation, insisting that he will need to see conditions change “in a clear and convincing way” before the Fed stops raising rates and tightening monetary policy.

Ferguson said the survey “suggests that this set of circumstances is not likely to get better anytime soon and consequently pressures on the middle line and the bottom line for businesses, pressures on the household sector, pressures at CEO level, and, frankly, pressures on the Federal Reserve.”

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Jerome Powell, chairman of the U.S. Federal Reserve, arrives for a Senate Banking Committee hearing in Washington, D.C., on Thursday, July 15, 2021.
Al Drago | Bloomberg | Getty Images

Federal Reserve Chair Jerome Powell emphasized his resolve to get inflation down, saying Tuesday he will back interest rate increases until prices start falling back toward a healthy level.

“If that involves moving past broadly understood levels of neutral we won’t hesitate to do that,” the central bank leader told The Wall Street Journal in a livestreamed interview. “We will go until we feel we’re at a place where we can say financial conditions are in an appropriate place, we see inflation coming down.

“We’ll go to that point. There won’t be any hesitation about that,” he added.

Earlier this month, the Fed raised benchmark borrowing rates by half a percentage point, the second increase of 2022 as inflation runs around a 40-year high.

Powell said following that increase that similar 50 basis point moves were likely to come at ensuing meetings so long as economic conditions remained similar to where they are now.

On Tuesday, he repeated his commitment to getting inflation closer to the Fed’s 2% target, and cautioned that it might not be easy and could come at the expense of a 3.6% unemployment rate that is just above the lowest level since the late 1960s.

“You’d still have a strong labor market if unemployment were to move up a few ticks,” he said. “I would say there are a number of plausible paths to have a soft as I said softish landing. Our job isn’t to handicap the odds, it’s to try to achieve that.”

The U.S. economy saw growth contract at a 1.4% pace in the first quarter of 2022, due largely to ongoing supply side constraints, spread of the omicron Covid variant and the war in Ukraine.

However, tighter monetary policy has added to concerns about a steeper downturn and has sparked an aggressive sell-off on Wall Street. In addition to the 75 basis points in interest rate hikes, the Fed also has halted its monthly bond-buying program, which is also known as quantitative easing, and will begin shedding some of the $9 trillion in assets it has acquired starting next month.

Powell said he still hopes the Fed can achieve its inflation goals without tanking the economy.

“You’d still have a strong labor market if unemployment were to move up a few ticks. I would say there are a number of plausible paths to have a soft as I said softish landing. Our job isn’t to handicap the odds, it’s to try to achieve that,” he said.

He added that “there could be some pain involved to restoring price stability” but said the labor market should remain strong, with low unemployment and higher wages.

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Shoppers inside a grocery store in San Francisco, California, U.S., on Monday, May 2, 2022. 
David Paul Morris | Bloomberg | Getty Images

April’s consumer price index report is expected to show inflation has already reached a peak — a development that some investors say could temporarily soothe markets.

But economists say, even with a reprieve in headline inflation, core inflation could gain on a monthly basis and stay elevated for months to come. Core inflation excludes food and energy costs.

The CPI report is expected to show headline inflation rose 0.2% in April, or 8.1% year-over-year, according to Dow Jones. That compares with a whopping 1.2% increase in March, or an 8.5% gain year-over-year. The April data is expected at 8:30 a.m. ET Wednesday.

Core CPI is expected to rise 0.4% or 6% year-over-year. That compares with 0.3% in March, or 6.5% on an annualized basis.

Stocks gyrated Tuesday ahead of the much-anticipated data. The S&P 500 ended the day with a 0.25% gain, and the Nasdaq added 0.98%. The Dow Jones Industrial Average lost 84.96 points.

The closely watched benchmark 10-year Treasury yield retreated to about 2.99% Tuesday after a sharp run up to 3.20% Monday. Bond yields — which move opposite price — have been running higher at a rapid pace on expectations of aggressive Federal Reserve interest rate hikes.

“I wouldn’t say tomorrow’s CPI matters by itself. I think the combination of March, tomorrow’s and May’s data will kind of be the big inflection point,” said Ben Jeffery, a fixed income strategist at BMO.

But Jeffery said the report has a good chance of being a market mover, no matter what.

“I think it will either reassert the selling pressure we saw that took 10s to 3.20% … Or I think it will inspire more dip-buying interest for investors who have been waiting for signs that inflation is starting to peak,” he said.

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A potential turning point for stocks

In the stock market, some investors say the data could signal a turning point if April’s inflation comes in as expected or is even weaker.

“I think the market, from a technical standpoint, is very focused on trying to divine how much the Fed is going to move,” said Tony Roth, chief investment officer at Wilmington Trust Investment Advisors.

A hotter report would be a negative since it could mean the Fed will take an even tougher stance on interest rates. Last week, Fed Chair Jerome Powell signaled the central bank could hike rates by 50 basis points, or a half-percent, at each of the next couple of meetings.

The market has been nervous about inflation and that the Fed’s response to it could trigger a recession.

“I don’t think this is the end of the drawdown in the market … The market needs to go down 20% at a minimum. If we get a series of better inflation data, then I think 20% could be the bottom,” Roth said. The S&P 500 is off nearly 17% from its high.

“If the inflation data is not as good as we think it will be, not just this month but consecutive months, then I think the market prices for a recession, and then it’s down 25% to 40%,” said Roth.

Two risks emerge

Roth said there are two potential exogenous risks in inflation data, and either could prove to be a problem for markets. One is the unknowns around the oil and gas supply strains and price shocks caused by Russia’s invasion of Ukraine, and the other is China’s latest Covid-related shutdowns and the impact on supply chains.

“Nobody knows how they’re going to play out … Either one of these could be a bigger problem than the market is anticipating right now,” Roth said.

Aneta Markowska, chief financial economist at Jefferies, said she is expecting a hotter-than-consensus report, with 0.3% gain in headline CPI and a 0.5% jump in core. She thinks the market’s focus is wrong and investors should be concerned more with how much inflation can decline.

“I think a lot of folks are focusing on the year-over-year rate slowing, and I think that helps consumers because it looks like real wages will actually be positive for a change in April on a month-over-month basis,” she said. “But if we get that acceleration in core back to 0.5% that we are projecting, that’s a problem for the Fed. If you annualize that, you’re running at 6%, and that would really mean no slowdown.”

Markowska noted the central bank assumes inflation will slow to 4% this year and 2.5% next year. “The question we have to ask is are we on track to hit that forecast and if not, the Fed could have a bigger policy overshoot than they envisioned,” she said.

The perception is that inflation problems are supply chain-driven, but those issues are going away, Markowska added.

“I think that ship has sailed. We’re past supply chains. This is the services sector. This is the labor market,” she said. “Just because we peak and core goods inflation is coming down, that doesn’t fix the problem. The problem is now everywhere. It’s in services. It’s in the labor market, and that’s not going to go away on its own … We need core inflation to get down to 0.2%, 0.3% month-over-month pace, and we need it to stay there for a while.”

Barclays U.S. economist Pooja Sriram said she does not think investors should get too excited about inflation peaking, since what will matter is how quickly the level comes down.

“For the Fed to be pacified that inflation is coming down, we need to get a really weak core CPI print,” she said. “Headline CPI is going to be hard to come down because the energy component is swinging.”

The energy index was up 11% in March, and it may be less of a contributor to overall inflation in April because gasoline prices fell. Economists say energy will be a bigger issue in May data, since gasoline is rising to record levels again.

Some economists expect used-car prices will come down in April, but Markowska said data she monitors shows increases at the retail level.

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Christopher Waller, U.S. President Donald Trump’s nominee for governor of the Federal Reserve, speaks during a Senate Banking Committee confirmation hearing in Washington, D.C., U.S, on Thursday, Feb. 13, 2020.
Andrew Harrer | Bloomberg | Getty Images

Federal Reserve Governor Christopher Waller pledged Tuesday that the rate-setting group wouldn’t make the same mistakes on inflation that it did in the 1970s.

Back then, he said during a panel chat with Minneapolis Fed President Neel Kashkari, the central bank talked tough on inflation but wilted every time tighter monetary policy caused an uptick in unemployment.

This time, Waller said he and and his colleagues will follow through on its intentions to raise interest rates until inflation comes down down to the Fed’s targeted level. The central abnk has raised rates twice this year, including a half percentage point move last week.

“We know what happened for the Fed not taking the job seriously on inflation in the 1970s, and we ain’t gonna let that happen,” Waller said.

The remarks came with inflation running at its hottest pace in more than 40 years. Earlier in the day, President Joe Biden called inflation the economy’s biggest challenge now and noted fighting price increases “starts with the Federal Reserve.”

Though he noted the central bank’s political independence, Biden said, “The Fed should do its job, and it will do its job. I’m convinced of that in my mind.”

While Waller drew the comparison to the Fed of the 1970s and early ’80s, which eventually defeated inflation with a series of massive interest rate hikes when Chairman Paul Volcker took over, he said he doesn’t think the current policymakers need to be as aggressive.

“They had zero credibility, so Volcker just basically said, ‘I’ve got to just do this shock and awe,'” Waller said. “We don’t have that problem right now. This is not a shock-and-awe Volcker moment.”

The Volcker moves took the Fed’s benchmark interest rate to close to 20% and sent the economy into recession. Waller said he had a conversation with the former chair before his death, and Volcker said, “If I had known what was going to happen, I never would have done it.”

Waller said he thinks the economy can withstand the path of rate hikes this time that will be much gentler than the Volcker era.

“The labor market is strong. The economy is doing so well,” he said. “This is the time to hit it if you think there’s going to be any kind of negative reaction, because the economy can take it.”

Earlier in the day, Richmond Fed President Thomas Barkin also backed the goal of getting inflation under control, saying the likely path will get the fed funds rate to a range of 2% to 3% and “we can then determine whether inflation remains at a level that requires us to put the brakes on the economy or not.”

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A worker stocks items inside a grocery store in San Francisco, California, May 2, 2022.
David Paul Morris | Bloomberg | Getty Images

Consumers grew a little more optimistic about inflation in April, though they still expect to be spending considerably more in the year ahead, a Federal Reserve survey released Monday shows.

Inflation expectations over the next year fell to a median 6.3%, a 0.3 percentage-point decrease from the record high in March, according to data going back to June 2013. On a three-year basis, expectations rose 0.2 percentage point to 3.9%, which itself is 0.3 percentage point off the record.

The data comes with 12-month inflation in March running at 8.5%, the highest level since December 1981. April consumer prices are due to be reported on Wednesday.

Responding to the surge in prices, the Fed last week raised benchmark interest rates by a half percentage point, the biggest hike in 22 years and the second increase of the year.

“We have our job to do and we have to bring inflation back down,” Minneapolis Fed President Neel Kashkari told CNBC’s “Squawk Box” in a Monday morning interview.

Americans are still leery about the high cost of living. Household spending is projected to rise 8% over the next year, according to the New York Fed survey. That’s a 0.3 percentage point increase from a month ago and another series high.

However, there also was some optimism, as consumer expectations for gas price increases fell to 5.2%, a 4.4 percentage point drop that came as oil prices edged lower in April. Respondents also grew more secure in their jobs, with just 10.8% expecting to lose their employment over the next 12 months, tied for an all-time low.

Expectations for home prices were unchanged, but the 6% anticipated increase is still higher than the long-term average.

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Minneapolis Federal Reserve President Neel Kashkari said Monday he’s confident inflation will come back to normal, though he added it will take longer than he expected.

Acknowledging that he was on “team transitory” in believing that surging prices wouldn’t last, he said persistent supply-demand imbalances have generated the highest inflation levels in more than 40 years.

While the Fed’s monetary policy tools can help tamp down demand, they can’t do much to get supply to keep up.

“I’m confident we are going to get inflation back down to our 2% target,” he told CNBC’s “Squawk Box” in a live interview. “But I am not yet confident on how much of that burden we’re going to have to carry versus getting help from the supply side.”

Neel Kashkari
Anjali Sundaram | CNBC

His comments come less than a week after the Federal Open Market Committee raised benchmark rates by a half percentage point. The 50 basis point hike was the largest increase in 22 years and sets the stage for a series of similar-sized moves in the months ahead.

Though Kashkari historically has favored lower rates and looser monetary policy, he has voted in favor of the two increases this year as necessary to control spiraling prices. He noted, though, that the burden from tighter policy will fall on those at the lower end of the wage spectrum.

“It’s the lowest-income Americans who are most punished by these climbing prices, and yet your policy tools to tamp down inflation most directly affect those lowest-income Americans as well, either by raising the cost to get a mortgage … or if we have to do so much that the economy were to go into recession,” he said. “It’s their jobs that are most likely put at risk.

“So this is a difficult challenge I think for all of us, but we also know that letting inflation stay at these very high levels, it’s not good for anybody and it’s not good for the economy’s long-run potential for anybody across the income distribution,” he added.

On Wednesday, the government will release its latest data on consumer prices, followed by April producer prices on Thursday.

Economists expect the pace of inflation to have eased a bit in April, with the headline consumer price index likely to show an 8.1% increase over the past year, and 6% excluding food and energy, according to Dow Jones estimates. That compares to March’s respective climbs of 8.5% and 6.5%.

Those kinds of numbers provide some comfort to Kashkari, though he said conditions remain challenging as long as the supply and demand imbalances remain.

“We just need to keep paying attention to the data,” he said. “Some of the more recent inflation data by some measures is a little softer than we had thought might come in. So maybe there’s some evidence that things are starting to soften by a hair. But we just need to keep paying attention to the data and see where it comes out before we can draw any conclusions.”

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A “now hiring” sign is posted in the window of an ice cream shop in Los Angeles, California on January 28, 2022.
Frederic J. Brown | AFP | Getty Images

Employment openings exceeded the level of available workers by 5.6 million in March while a record number of people quit their jobs, the Labor Department reported Tuesday.

The level of job postings hit 11.55 million for the month, also a fresh record for data that goes back to December 2000, according to the Job Openings and Labor Turnover Survey. That was up 205,000 from February and representative of a jobs market still historically tight.

At the same time, quits totaled 4.54 million, an increase of 152,000 from the previous month as the so-called Great Resignation continued. The Covid pandemic era has seen opportunities for workers who feel confident enough to leave their current situations for better employment elsewhere.

The report adds to an inflationary picture that is expected to push the Federal Reserve into a series of aggressive rate hikes, starting with a half-percentage point move Wednesday.

A shortage of labor supply during the pandemic has caused a surge in wages, with average hourly earnings up 5.6% from a year ago in March. Still, that hasn’t kept up with inflation, which has run at an 8.5% pace over the same time period.

Supply failed to keep up with demand in March, with the level of new hires actually declining slightly to 6.74 million despite the increase in openings. Total separations rose to 6.32 million, a rise of nearly 4% from February.

Job openings in the pivotal leisure and hospitality industry declined by 45,000, a drop of 2.6% on a monthly basis, while hiring increased by 40,000. The sector is considered a key proxy for the economic recovery and has an unemployment rate of 5.9%, still a bit higher than its pre-pandemic level.

Tuesday’s release comes the same week as the key April nonfarm payrolls report. Economists surveyed by Dow Jones expect an increase of 400,000 jobs and a decline in the unemployment rate to 3.5%, which would match the pre-pandemic rate that was the lowest since December 1969.

Correction: Job openings in the pivotal leisure and hospitality industry declined by 45,000. An earlier version misstated the category.

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Jerome Powell, Chairman of the U.S. Federal Reserve, attends the National Association of Business Economicseconomic policy conference in Washington, D.C, United States on March 21, 2022.
Yasin Ozturk | Anadolu Agency | Getty Images

The Federal Reserve is tasked with slowing the U.S. economy enough to control inflation but not so much that it tips into recession.

Financial markets expect the central bank on Wednesday to announce a half-percentage point increase in the Fed’s benchmark interest rate. The fed funds rate controls the amount that banks charge each other for short-term borrowing but also serves as a signpost for many forms of consumer debt.

Doubts are rising about whether it can pull it off, even among some former Fed officials. Wall Street saw another day of whipsaw trading Monday afternoon, with the Dow Jones Industrial Average and S&P 500 rebounding after being down more than 1% earlier in the session.

“A recession at this stage is almost inevitable,” former Fed vice chair Roger Ferguson told CNBC’s “Squawk Box” in a Monday interview. “It’s a witch’s brew, and the probability of a recession I think is unfortunately very, very high because their tool is crude and all they can control is aggregate demand.”

Indeed, it’s the supply side of the equation that is driving most of the inflation problem, as the demand for goods has outstripped supply in dramatic fashion during the Covid-era economy.

After spending much of 2021 insisting that the problem was “transitory” and would likely dissipate as conditions returned to normal, Fed officials this year have had to acknowledge the problem is deeper and more persistent than they acknowledged.

Ferguson said he expects the recession to hit in 2023, and he hopes it “will be a mild one.”

Hiking and ‘the recession that comes with it’

That sets up this week’s Federal Open Market Committee as pivotal: Policymakers not only are almost certain to approve a 50-basis-point interest rate hike, but they also are likely to announce a reduction in bond holdings accumulated during the recovery.

Chair Jerome Powell will have to explain all that to the public, drawing a line between a Fed determined to crush inflation while not killing an economy that lately has looked vulnerable to shocks.

“What that means is you’re going to have to hike enough to maintain credibility and start to shrink the balance sheet, and he’s going to have to take the recession that comes with it,” said Danielle DiMartino Booth, CEO of Quill Intelligence and a top advisor to former Dallas Fed President Richard Fisher while he served. “That’s going to be an extremely difficult message to communicate.”

The recession chatter on Wall Street has intensified a bit lately, though most economists still think the Fed can tighten inflation and avoid a crash landing. Market pricing indicates this week’s increase of 50 basis points is to be followed by a hike of 75 basis points in June before the Fed settles back into a slower pace that eventually takes the funds rate to as high as 3% by the end of the year.

But none of that is certain, and it will depend largely on an economy that contracted at 1.4% annualized pace in the first quarter of 2022. Goldman Sachs said it sees that reading dropping to a 1.5% decline, though it expects second-quarter growth of 3%.

Fears of bad timing

There are “growing risks” in the economy that could derail the Fed’s plans, said Tom Porcelli, chief U.S. economist at RBC Capital Markets.

“For starters, while everyone seems very focused on here and now data/earnings that seem to suggest all is fine at the moment, the problem is cracks are building,” Porcelli said in a note. “Moreover, this is all happening as inflationary pressures are quite likely to slow — and possibly slow more than seems appreciated at the moment.”

Monday brought fresh signs that growth at least could be slowing: The ISM Manufacturing Index for April decreased to 55.4, indicative of a sector still expanding but at a reduced pace. Perhaps more importantly, the employment index for the month was just 50.9 — a reading of 50 indicates expansion, so April pointed to a near-halt in hiring.

And what of inflation?

Twelve-month readings are still registering the highest levels in about 40 years. But the Fed’s preferred measure saw a monthly gain of just 0.3% in March. The Dallas Fed’s trimmed mean, which throws out readings at either end of the range, tumbled from 6.3% in January down to 3.1% in March.

Those kinds of numbers conjure up the worst fears on Wall Street, namely that a Fed way behind the curve on inflation when it began now may be as recalcitrant when it comes to tightening.

“They’re going to reiterate, ‘Look, we’re going to be data-sensitive. If the data changes, we’ll change what we’re expected to do,'” said James Paulsen, chief investment strategist at The Leuthold Group. “There’s certainly some slower real growth going on. It’s not falling off a cliff, for sure, but it’s moderating. I think they’ll be more sensitive to that down the road.”

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The Federal Reserve is hiking interest rates in an effort to defuse an explosive year of price inflation. But global forces could neutralize the effects of that tightening of monetary policy, and keep inflation high.

Some observers believe the U.S. government may have misread the looming threat of inflation. During the pandemic, Uncle Sam dispersed historic sums of cash to blunt widespread economic damage. Analysts say this stimulus produced strong household savings. A boom in demand for durable goods followed.

This surge in demand came as global supply chains stalled out, and a persistent bout of inflation followed. In March 2022, prices across all categories rose to historic levels, 8.5% year over year. And investors believe the price hikes aren’t over yet, according to a New York Federal Reserve survey.

“The only way to break the back of inflation that’s running out of control is for very tight monetary policy, ” says Richard Fisher, former President of the Federal Reserve Bank of Dallas. “It slows things down because everything becomes expensive.”

Today’s inflation isn’t spiraling in the way it did in the recent past, however. From 1965 to 1982, inflation soared, at times reaching double-digit rates. In 1979, the central bank, under Chair Paul Volcker, kicked off a tightening cycle that resulted in interest rates of nearly 20%.

Strong monetary policies killed inflation, but also led companies to offshore labor costs. As a result, American workers saw their labor income stagnate relative to productivity for four decades.

This period in U.S. economic history is remembered for stagflation, which describes the duel threat of stagnant growth and persistent inflation.

Today’s Federal Reserve leaders hope to avoid such a dramatic turn of events. But their plan could backfire, as many of the root causes of inflation are outside of the bank’s control.

Watch the video above to learn more about the central bank’s fight against stagflation.

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A pedestrian carries shopping bags in the Herald Square area of New York, U.S., on Wednesday, April 13, 2022.
Calla Kessler | Bloomberg | Getty Images

Sandy Magny plans to take her teenage daughter to West Palm Beach, Florida, this summer, even though airfares are surging.

It won’t be cheap, but Magny doesn’t want to miss out on visiting her family. The 40-year-old paralegal, who lives in the Bronx and works in the financial district of Manhattan, is finding there are other things she can do without.

“I do bring lunch more,” she said. “I could make coffee in the office.”

Magny is one of millions of people starting to shift where her dollars go after two years of the Covid-19 pandemic. Consumer prices have increased at the fastest clip in four decades. The cost of everything from housing to a latte is on the rise, begging the questions: When — and where — will consumers cut spending?

Some companies are already feeling the impact as they try to pass higher costs along to customers.

Amazon‘s most recent quarterly sales grew at the slowest pace since the 2001 dot-com bust. Netflix lost subscribers in the last quarter for the first time in more than a decade. Video game maker Activision Blizzard, home appliance giant Whirlpool and 1-800-Flowers all reported weaker sales in the last quarter.

Meanwhile, companies from Ford to McDonald’s to Kraft Heinz to United Airlines have reported resilient demand as consumers keep spending in spite of higher prices.

The changes in consumer behavior have some executives on edge.

“We do believe that the consumer is going to be spending,” Macy‘s CFO Adrian Mitchell said at JP Morgan’s Retail Round-Up last month. “But are they going to be spending on discretionary items that we sell, or are they going to be spending on an airline ticket to Florida, or travel, or going out to restaurants more?” 

Coca-Cola CEO James Quincey told CNBC last week that customers won’t “swallow inflation endlessly.” 

Consumer spending, as measured by the Commerce Department, rose a seasonally-adjusted 1.1% in March. And spending remains strong even among low-income households with an annual income of less than $50,000, according to Bank of America data. (The data exclude households that do not have access to cards.)

But consumer confidence, a measure of shoppers’ sentiments around market conditions reported by The Conference Board, ticked lower in April.

“We’re not really seeing many signs of slowdown, despite the worries that are happening in the market,” said Anna Zhou, a U.S. economist for Bank of America.

One reason is the amount of money that people socked away during the pandemic. On average, low-income households have $3,000 in their savings and checking accounts – nearly double what they had at the start of 2019, according to the Bank of America’s internal data. That has given consumers a buffer, even as they pay more at the gas pump and grocery store, Zhou said.

Only the good stuff

Many customers aren’t only spending, but are finding themselves increasingly willing to splurge, whether on a higher-end pair of Levi‘s jeans or a first-class seat on a Delta Air Lines flight.

Apple on Thursday reported a “record level of upgraders” during the first three months of the year as users opted for its more premium iPhones, but warned about the impact of lockdowns in China. And as automakers raise prices to reflect tight inventory from global supply chain issues, car-seekers aren’t getting scared off.

Ford CFO John Lawler said this week that despite price increases, the company is still seeing exceptionally strong demand for its newest products, ranging from the small Maverick pickup, which starts around $20,000, to the electric Mustang Mach-E crossover, which in higher trims can cost well over $60,000. It’s already sold out for the 2022 model year.

United, Delta and Southwest Airlines are predicting 2022 profits thanks to seemingly insatiable demand from customers after two brutal pandemic years, both for leisure and business travel. Their own staffing constraints are holding them back flying even more.

U.S. round-trip domestic airfare for travel between Memorial Day and Labor Day averaged $526, up more than 21% from 2019, according to Airlines Reporting Corp.’s data from travel agencies.

“The demand environment is the strongest it’s been in my 30 years in the industry,” United Airlines CEO Scott Kirby said in an April 20 earnings release.

Travelers walk through Terminal A at Orlando International Airport on Christmas Day, Saturday, December 25, 2021.
Stephen M. Dowell | Orlando Sentinel | Getty Images

Levi Strauss & Co. Chief Executive Officer Chip Bergh told CNBC last month that in spite of rising prices, consumers weren’t trading down to less-expensive denim. Levi reaffirmed its outlook for fiscal 2022, which calls for revenue to grow between 11% and 13% from the prior year. 

But signs are emerging that consumer appetite might be nearing its limit.

Domestic U.S. airline bookings in the first two weeks of April fell 2% compared with the previous two weeks, the first decline over such a timeframe this year, according to Adobe Analytics. In March, bookings rose 12% from 2019, but customer spending on those tickets soared 28%.

March restaurant traffic fell 1.7%, according to industry tracker Black Box Intelligence. Fine dining, upscale casual and family dining establishments saw the biggest jump in sales growth, but the segments are still trying to claw back from pandemic lows.

Jodi Klobus a 58-year-old mother of three and grandmother of four who lives outside of Albany, N.Y., told CNBC she and her husband, a retired New York City police officer, used to dine out twice a week. Now that their meals, and everything else, cost more, they’ve scaled back to twice a month.

“I feel it in the pocketbook,” Klobus said.

Challenges ahead in 2023

And there are other risks looming that could crimp consumer spending, even if the impact isn’t immediate. Rents are marching higher and property taxes haven’t fully caught up to skyrocketing home values.

The Federal Reserve is aiming to tackle inflation by raising interest rates. That translates to higher borrowing costs for homebuyers and credit card users.

In the fourth quarter, U.S. credit card balances rose by $52 billion, the biggest quarterly jump in 22 years of New York Fed data, but they are still down $71 billion from the end of 2019.

U.S. credit card delinquency rates rose to 1.62% from a more than three-decade low of 1.48% in the second quarter of last year, still far from the 6.6% peak hit in the first quarter of 2009, the tail-end of the Great Recession, according to the St. Louis Fed.

“For this year, consumer spending should remain resilient,” said Zhou, the Bank of America economist. “For next year, it’s a little less certain – and certainly toward the second half of next year, that’s when risk of more of a slowdown in consumer can arise.”

I just complain about the prices.
Cindy Maher
of Bloomfield, Connecticut

Boeing CEO Dave Calhoun on Wednesday said demand for new planes from airlines is recovering thanks to a resurgence of travel demand. Yet it’s unclear whether Americans will keep splurging on trips in the months ahead or will hit a point when they’ll cut back.

“That second year, when inflation begins to take a toll on consumers’ pocket, that is when those numbers really begin to matter to us,” Calhoun said in an interview with CNBC’s “Squawk on the Street.”

For the moment, many consumers, like Cindy Maher, a 58-year-old who owns a leadership development consulting firm and lives in Bloomfield, Connecticut, feel comfortable enough to maintain their spending habits.

“I’m not cutting back,” she said. “I just complain about the prices.”

Maher said she’s noticed nearly $7 loaves of bread and that it costs $70 to fill up the tank of her car. But she said in her two-income household, she can absorb those costs.

“My heart goes out to those who have low-paying jobs,” she said.

–CNBC’s Amelia Lucas and John Rosevear contributed to this article.

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