A MARTÍNEZ, HOST:
Up next, though, we're talking about why Americans are getting more cautious about how they spend their money. After two years of rising prices, some shoppers are hitting a wall. Retailers, restaurants and the Federal Reserve have all taken note of the trend. NPR's Scott Horsley joins us now. Scott, for a long time the U.S. consumer seemed almost unstoppable, no matter what happened with inflation or interest rates. Is that finally starting to change?
SCOTT HORSLEY, BYLINE: Yeah, it's starting to change, A. Consumers have not stopped spending money, but they have slowed down, especially when it comes to buying stuff. The Federal Reserve's Beige Book, which came out this week, had accounts from retailers who say customers are starting to push back against price hikes. They're looking for ways to cut expenses. That's been good for some discount chains like Dollar General, which reported better than expected profits yesterday. CEO Todd Vasos says the chain is getting more traffic now from middle- and upper-income shoppers looking to save some money. Lower-income customers are also sticking with Dollar General, often checking out, though, with fewer items in their basket.
TODD VASOS: It's a cautious consumer. She is definitely making tradeoffs in the store and at the shelf. Feeding her family and taking care of her family is her No. 1 priority. Inflation has and continues to be top of mind for her.
HORSLEY: It turns out consumer spending on stuff actually fell more sharply than we thought in the first three months of the year, and that led to slower overall economic growth than first reported. And this morning we learned that trend continued in April. The Commerce Department reported that spending on stuff fell a little bit further last month.
MARTÍNEZ: All right, so will that slowdown then get inflation under control?
HORSLEY: You'd like to think so, but here's the rub. People have cut back spending on stuff - cars, clothing, appliances, that kind of thing. But a lot of inflation today is coming from the services side of the ledger, things like haircuts and entertainment. And that spending is still climbing. It continued to go up in April. Travel over the Memorial Day weekend, last weekend, was the busiest in almost two decades. Economist Tim Quinlan, who's at Wells Fargo, says so long as spending on services stays strong, it's likely to keep upward pressure on prices.
TIM QUINLAN: As long as demand remains as robust as it is in the service sector, it's going to be hard for the Fed to deliver on those expected rate cuts.
HORSLEY: Today's report showed prices in April were up 2.7% from a year ago. That's the same annual increase as the month before. And it's still well above the Fed's target for inflation, which is 2%.
MARTÍNEZ: Now, how do people afford that increased spending?
HORSLEY: The good news is people's incomes are also going up. Lots of people are working. Paychecks have been getting bigger. Wages have actually outpaced inflation for about a year now. The not so good news is spending continues to climb. Some people have been dipping into savings in order to keep spending or putting it on the credit card, which is really costly at today's interest rates. At some point, Quinlan says, something's got to give.
QUINLAN: I know it's sort of the default setting for an economist to cheer it on and root for strong consumer spending, but I sometimes feel like it may be in people's best interest to dial it back a little bit.
HORSLEY: Now, there are some signs people are starting to dial it back. Overall spending rose only slightly last month and actually a little bit slower than incomes climbed. Spending on services is still going up, but April's increase was the smallest in months. So that could provide some comfort for the Fed.
MARTÍNEZ: NPR's Scott Horsley. Scott, thanks.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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