From Levi’s to Target, US brands gear up for young…

BLOOMBERG — Businesses across the U.S. are gearing up for federal student loan repayment in October, and remember how that extra bill will hit their customers’ pockets.

Retailers Target Corp. and Walmart Inc. And blue jeans maker Levi Strauss & Co are among the companies warning investors that any slowdown in youth spending will result.

The phrase “student loan” was mentioned at least 40 times in the current quarter’s earnings calls by companies in the S&P 500. Bloomberg.

Americans with federal student loans have not had to pay anything on their loans since the Trump administration froze payments and interest in March 2020 to cushion the economic impact of lockdowns due to Covid. That relief comes after the Supreme Court struck down President Joe Biden’s debt forgiveness plan in June, which would have forgiven up to $20,000 per borrower and eliminated the debt of about 20 million people.

While some major consumer companies will benefit from a surge in purchases as Americans spend their pandemic savings, they are wary that credit bills will add up to higher inflation and rising borrowing costs.

“It’s not going to help us,” Levi CEO Chip Berg said in a July interview. “The consumer is already under pressure and it’s only going to get worse.”

Before the pandemic, the average monthly cost of student loans was about $400. Starting in October, one in five borrowers is expected to have monthly payments of $500 or more, according to a TransUnion study released in July. It would hit the US economy hard: According to Oxford Economics, the withdrawal would cut consumption by $9 billion a month, or more than $100 billion a year.

“Immediate student loan repayment will put additional pressure on the already strained budgets of millions of families,” Target’s chief financial officer, Michael Bitelke, said during the company’s Aug. 16 call. “We are cautious in our planning.”

Doug McMillon, Walmart’s CEO, said student loans, rising energy costs and shrinking household savings are all sources of pressure on consumption in the coming months. Research from the Federal Reserve Bank of San Francisco released last week showed that Americans’ pandemic savings have almost shrunk, shrinking from $2.1 trillion in August 2021 to a total of less than $190 billion in June.

Newell Brands Inc. owns homeware brands such as Rubbermaid and Calphalon. and online retailer Etsy Inc. It also said it was looking at how student loan repayments could affect people’s wallets. as well as appliance maker Stanley Black & Decker Inc. and Mediterranean restaurant chain Cava Group Inc. and fast food brand Wendy’s Co.

Retail companies are coming off a mixed earnings season. Some reported better-than-expected sales and revenue, while others struggled to retain customers. But a common theme is that the second half of the year won’t be promising, and they point to resuming student loan payments.

For some, the warnings could test the patience of investors already digesting disappointing quarterly reports. Macy’s Inc. The flagship store posted a 9.2% drop in sales as consumers cut back on purchases, sending the stock to its lowest level since 2021.

“Student loan forgiveness expiring in October, higher interest rates and new low job creation are new pressures on consumers,” CFO Adrian Mitchell said on Aug. 22.

Foot Locker Inc. In its Aug. 23 report, it cited withdrawal of payments as one of the factors dragging down its forecasts. Shares fell to a 13-year low on Wednesday as investors weighed down forecast cuts and lack of results.

But even executives at top-performing companies highlighted the risks: Target was one of the companies that beat analysts’ estimates as it grappled with sluggish demand for non-essential and large investments.

Surveys of borrowers’ plans point to trouble ahead: A survey of 1,000 college graduates by the education website Study.com found that 37% of respondents planned to adjust their budgets in anticipation of their student loan bills, and 29% said they were looking for a plan. A second job helps make up for the deficit.

See also Bloomberg.com

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