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US consumers are alive — Here's proof there is no recession

Brian Sozzi

If the U.S. is teetering on a trade war driven first half 2020 recession, it’s not showing up in the third quarter earnings results of companies that supply households with their fast-food and cleaning products.

That would appear to defy the conventional logic on the economy being spewed for months by most money managers. And it would even suggest the latest macroeconomic reads on the health of shoppers is understating spending potential with unemployment at 50-year lows. Recall the U.S. Commerce Department is fresh off reporting that consumer spending rose by a paltry 0.1% in August. July consumer spending figures were revised slightly lower to show a 0.5% gain.

Meanwhile, consumer confidence measures have been under pressure since summer. Consumer products giant P&G (PG) saw next to none of this worry and consumer angst in its latest earnings report.

“In terms of what we have seen to date, it’s a very resilient, strong and confident consumer,” P&G chief financial officer Jon Moeller said on Yahoo Finance’s ‘The First Trade.’

Here are several recent earnings reports that suggest the U.S. consumer is more than just alive and kicking, they are alive and screaming they want to spend money on stuff.

Consumer goods

P&G said Tuesday that its fiscal first quarter organic sales grew in all of its business lines paced by a 10% gain in beauty. The company is seeing strength in its newest innovations such as Crest with charcoal, which are often priced at a premium. In a recessionary environment, consumers would switch to cheaper products from P&G or private label offerings.

TORONTO, ONTARIO, CANADA - 2016/09/18: Crest pro health toothpaste arranged on display in a store shelf. (Photo by Roberto Machado Noa/LightRocket via Getty Images)

Product volume increased in all segments except grooming, which fell 1%, as P&G continues to feel pressure from competitive pricing by upstart razor blade companies.

The company also offered up another upbeat outlook. The company outlined organic sales growth of 3% to 5% in the coming fiscal year compared to 3% to 4% previously. Earnings excluding one-time items are seen rising 4% to 10%, versus a prior outlook of 4% to 9%.

The upbeat read on the consumer extended to P&G rival Kimberly-Clark (KMB) today. Consumers also preferred Kimberly-Clark’s new, more premium products such as plant-based Huggies diapers.

Kimberly-Clark sales in North America increased in all business segments: personal care, tissue and professional. The company lifted its full year organic sales and operating profit guidance by 1%.

What recession?

Beverage makers

Similar to P&G and Kimberly-Clark, beverage giant Coca-Cola (KO) had its best success in the third quarter in new premium priced drinks. Think mini cans of Diet Coke and zero sugar options.

Coke slightly raised its full organic sales growth guidance to 5%. It reiterated its full-year earnings per share guidance for a decline of 1% to an increase of 1%.

FILE- In this April 21, 2017, file photo, a can of Coca-Cola Zero Sugar is arranged for a photo in Surfside, Fla. Strong sales of water and sugar-free drinks powered third-quarter earnings for Coca-Cola Co reported Tuesday, Oct. 30, 2018. Coke said sales of Coca-Cola Zero Sugar saw double-digit percentage growth in North America. (AP Photo/Wilfredo Lee, File)

PepsiCo’s (PEP) third quarter mirrored Coke’s in most cases. In fact, the quarter was so solid PepsiCo said it’s on track for an impressive $2 billion in online sales this year.

“From what we can see, the consumers of our products right now seem to be doing quite well — they are spending at a healthy clip,” PepsiCo Chief Financial Officer Hugh Johnston told Yahoo Finance.

If a recession was lurking, consumers wouldn’t be splurging on new flavored Diet Coke frequently — if at all. Meanwhile, PepsiCo snacks probably wouldn’t be on fire as households throw fewer expensive parties or people snack less on the way to work (they wouldn’t have work...).

Fast-food chains

Why eat at home on the cheap if you have a few extra dollars in your pocket and are feeling confident in your employment. Instead, why not live in the life of dinner luxury via the purchase of a $6 Wendy’s (WEN) Baconator or a $5 McDonald’s (MCD) Big Mac.

Wendy’s surprised most on Wall Street earlier this month by pre-announcing very strong North America sales. North American same-restaurant sales growth of 4.4%, powered by the Baconator and the return of spicy chicken nuggets (a premium priced item on the menu).

McDonald’s caught a good deal of flack today for missing Wall Street’s third quarter profit forecasts. But lost in the secret sauce was pretty healthy U.S. sales growth of 4.8%.

Home decor

It’s no secret that cuts to interest rates by the Federal Reserve has spurred a rebound in new and existing home sales in the country. Once inside their new digs, it appears consumers are confident enough in their financial standing to invest in expensive new paint.

Sherwin Williams (SHW) said today that higher paint demand — and paint at higher prices no less —drove sales in its Americas segment up by 8.7% in the third quarter. The segment’s operating profits surged by $85.9 million from the prior year as Sherwin-Williams had success pushing through price increases.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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