Where will Americans spend their next dollar? CEOs are getting

At what point do consumers say enough is enough when it comes to paying more for goods and services?

The question is top of mind for C-suite executives, regardless of industry, as inflation surges to levels not seen in decades. And as earnings season begins, so are the concerns about balancing the rising costs and the consumer.

“Either businesses are going to make a lot less money or they’re going to raise their prices,” RH CEO Gary Friedman said on the company’s earnings call on March 30. “I don’t think anybody really understands how high prices are going to go everywhere. … I think it’s going to outrun the consumer, and I think we’re going to be in some tricky space.”

Consumer prices rose 8.5% from a year ago in March, according to Labor Department data. That data reflects a rise that the U.S. has not seen since the late 1970s and early 1980s, with core inflation being the hottest since August 1982. The Producers Price Index, which measures what wholesalers are paying, posted its biggest rise year over year on record, up 11.3% in March.

So far in 2022, rising prices haven’t significantly slowed consumers down. Year-over-year retail spending was up 17.6% through February, according to the Commerce Department, and January spending was revised up to an increase of 4.9%, well ahead of the initial 3.8% estimate.

That continued strong demand is providing an opportunity for many companies to offset the increased pricing they’ve seen for materials and supply chain costs by passing it along to customers.

Nike upped its gross margin expectations by at least 150 basis points versus the previous year because of the “benefits of strategic pricing,” CFO Matt Friend said on the company’s most recent earnings call on March 21.

Conagra reported that its organic sales were up 6% in its most recent quarter even as volume declined 2.6% percent. The reason for that? Price/mix was up 8.6%. CFO Dave Marberger said on the company’s April 7 earnings call with analysts that the volume decrease was “primarily due to the elasticity impacts of the price increases.”

A hot job market, low unemployment and a historically high rate of savings have buoyed Americans, making them more willing to pay higher prices for goods and services. But while wages have grown, they have not kept pace with inflation. Real earnings were up 5.6% from a year ago while real average hourly earnings had a seasonally adjusted 0.8% decline last month, according to Bureau of Labor Statistics data.

There are signs the consumer strength is getting more tenuous, starting with a key earnings read from the used car market on Monday.

CarMax saw its used car unit comps drop 6.5% in its most recent quarter even as its used car revenue rose 32.6% due to average selling prices that skyrocketed. The company cited a number of macro factors as to why sales dropped, including “declining consumer confidence, the Omicron-fueled surge in COVID cases, vehicle affordability, and the lapping of stimulus benefits paid in the…