Some individuals are making large purchases such as pools and mattresses through gambling.

• High interest rates and inflation are causing some consumers to delay making large purchases such as furniture or pools.
• This unique economic moment can have significant effects on both individual consumers and the Federal Reserve.

Some Americans are delaying expensive purchases due to rising inflation and interest rates.

This earnings season, corporate executives have expressed concern that customers are uninterested in purchasing high-priced items for their bedrooms, backyards, and other areas. This coincides with a challenging time for the national economy, as the average person is facing high prices and borrowing costs while economists and policymakers attempt to assess the impact.

The Federal Reserve may finally get the sign it's been waiting for that interest rate hikes have had their intended effects of tightening the economy, which could be good news for investors and consumers.

"According to CEO Shelly Ibach, the consumer's purchasing power is constrained, leading them to closely examine their spending and prioritize short-term decisions based on necessity, cost, and perceived worth. As a result, consumers are delaying the purchase of high-end, long-lasting items."

Ibach stated that the mattress industry is experiencing a "historic recession," and sales are predicted to decline further following two challenging years. Despite analysts' expectations, the Minneapolis-based company recorded lower revenue and higher losses per share in the first quarter.

American adults have been delaying spending in areas like home improvement and electronics compared with before the pandemic, and executives across the consumer arena have been preparing for — and, in some cases, seeing — a slowdown over the last several months.

"Mark Mathews, the NRF's executive director of research, stated that consumers are still spending, but they are being more careful with their spending decisions. They are making important choices and are very price sensitive, indicating that they are back in a situation where consumers are all about the deal."

Multiple consumer headwinds

A shopper who is unsure if an expensive purchase fits within their budget, which is more common due to inflation, used to have the option of paying over time using credit. However, with rising interest rates, this option is no longer as popular.

The era of consumers being flush with cash from pandemic stimulus has ended, as more credit card bills are delinquent. U.S. households are cumulatively more than $70 billion in debt, with credit card debt rising and Americans collectively owing more than $1 trillion, according to data analyzed by the San Francisco and New York Feds.

Currently, consumers are confronted with either high interest rates or inflation, as the Fed tends to raise borrowing levels when prices are rising at a faster rate than it deems healthy for the economy. Despite a decrease in annualized inflation from its peak during the pandemic, it remains above the central bank's target of 2%.

Although the Fed funds rate remained between 5.25% and 5.50% for approximately 10 months, it was significantly lower at 0.13% for over a year during the pandemic, with the aim of promoting economic growth.

The interest rates on credit cards can be directly affected by the benchmark interest level. According to Sleep Number's Ibach, credit card delinquencies are one of the reasons why consumers are stretched. Additionally, increases in interest rates from the Fed can indirectly influence loan providers to raise interest rates on new borrowing agreements for items like cars or homes.

The effects of both inflation rates and increased interest rates are being felt by companies that produce components like springs for beds. CEO J. Mitchell Dolloff stated that consumers are shifting their spending towards services and basic necessities like food due to price pressures, rather than purchasing pricier, less essential goods.

The popular furniture e-commerce platform among cost-conscious shoppers stated that it was facing difficulties in selling its most expensive items. Management warned that this trend was happening across the board with home furnishers.

Despite economists predicting a 0.4% monthly growth in retail sales from March to April, Commerce Department data shows flat sales. This data, which is adjusted for seasonality but not inflation, suggests that consumers are not keeping up with rising prices.

What may seem unfavorable to consumers in the short term could have a positive outcome in the long run. Consumers who are hesitant to make large purchases due to price sensitivity can provide evidence to the Fed that it has successfully controlled inflation and paved the way for lowering interest rates.

Mathews, the retail industry trade group, stated that there are several factors at play in addition to the pandemic. He explained that the pandemic had a "pull-forward effect," causing consumers to purchase goods intended to last several years while they were stuck at home during the shutdowns. This trend may still be unwinding.

Mathews advised shoppers to wait for Memorial Day or other promotional periods to take advantage of deals.

Not the 'right moment'

The chilled housing market, which has been hindered by soaring mortgage rates, is also linked to many of these large-scale items.

The residential solar company stated that any future cuts to rates, even if less than initially expected, would boost demand in states other than California. However, in California, installers have become more "flexible" with their financing options, which is a unique market due to reduced credits.

The decline in interest levels has negatively impacted both housing affordability and discretionary spending, which are important factors for consumers when purchasing appliances such as refrigerators or washers. North American volumes were low in the quarter, and the company relied on promotions to boost demand, as stated by CEO Marc Bitzer.

Retailers selling these items may face challenges, as Bank of America analyst Robert Ohmes predicts soft appliance sales from the Minnesota-based chain.

High interest rates have hindered home improvement projects for those staying put, according to finance chief Richard McPhail. Despite describing the customer as "extremely healthy," he stated that these borrowing costs have caused a stalemate on projects that started in the second half of 2023.

"McPhail stated to CNBC that it is not about being unable to spend, but rather about deferring projects due to higher rates. It seems unwise to execute at this time."

A tale of two consumers

The negative trend in the economy is most acutely felt by those at the lower end of the income spectrum, aligning with the belief that the U.S. economic recovery from the pandemic has been "K"-shaped, with the experiences of different classes diverging like arms on the letter.

New swimming pool purchases have been negatively impacted by economic uncertainty and high borrowing levels, according to CEO Peter Arvan. However, there is a significant difference in demand among income groups. While lower-end pools continue to present a challenge, high-end pools have seen steady demand.

The decline in sales to Pool Corp.'s independent retail customers, which amounted to a 4% drop in the first quarter of 2024, is a concern for the Louisiana-based company, as it follows the 8% decline seen in the last three months of 2023.

Lifted interest rates have not hit the financially well-off as hard because their power generators are generally considered a luxury, according to CEO Aaron Jagdfeld.

"Jagdfeld informed analysts at the beginning of this month that these homeowners are less sensitive to movements in interest rates. He stated that the impact of higher interest rates on the margins of the market is already factored in and has been baked in."

This report was contributed to by CNBC's Melissa Repko, Gabrielle Fonrouge, Jeff Cox, and Robert Hum.