Mixed Signals on Consumer Spending

This week's disappointing jobs numbers underscored just how challenging the employment market is right now. It's hard to find a job, and without work consumers are not spending like they have in the past.

This was apparent in corporate earnings that were announced this week. Consumer goods companies such as  Procter & Gamble (PG) and  Kraft (KFT) reported that more basic products continue to be in vogue and there was hesitance to plunk down for premium products.

But this trend is certainly not universal.  Coach (COH), for example, reported that its decidedly discretionary products are flying off the shelves and that the firm expects to increase inventory to meet demand for the holidays. Other higher-end retailers have also seen surprising resilience among their customers.

At first glance, it seems that wealthier consumers are feeling more secure and are willing to splurge on small luxuries while less well-off people are still more concerned about job losses and holding back on spending.

Time will tell if this pattern becomes entrenched, and it will certainly have an impact on the shape of the recovery. 

Below is a recap of some of the largest earnings releases this week along with what management is saying about the state of the consumer.

Although the Cadbury acquisition helped boost Kraft in the quarter, weak consumer spending weighed on organic growth. CEO Irene Rosenfeld exclaimed that "the global economy is tough, and the consumer environment continues to be weak in many markets."

Procter & Gamble's operating profit fell 12.7% in the quarter as the firm ramped up advertising spending to counteract the challenging consumer environment. Management is focused on defending its market share by developing new products that will appeal to consumers across income ranges.

 MasterCard (MA) charged ahead in the quarter with purchase volume increasing 7.9%. Economic growth was strong in Asia and Latin America according to CEO Ajay Banga.  European card volume remained high despite macroeconomic headwinds. The U.S., however, is giving off "conflicting signals" as the recovery goes through its ups and downs. MasterCard data shows that fine dining, luxury retail, and furniture are down while more consumers are spending on travel.

High-end consumers looked stable after Coach's optimistic fiscal fourth quarter. Sales increased 13%, and even stable full-price stores saw sales rise in the quarter. Lew Frankfort, CEO and chairman, observed that the firm is taking market share and making strides in China.

 Whole Foods  reported third-quarter results that lend more evidence to the trend of higher-end retailers showing relative strength compared with lower-priced channels. Management is focused on increasing value offerings, indicating that their customers are coming back to the store are still looking for a good deal.