What Procter & Gamble earnings are telling us about consumers' appetite for spending

The consumer staples company Procter & Gamble reported better-than-expected earnings Friday morning, with net sales up 7% over the previous year.

The thing is, that wasn’t just because of higher prices. P&G says that there was also an increase in volume — meaning, the amount of stuff that consumers bought.

Consumers and investors see the maker of Pampers, Bounty, Charmin, Tampax, Dawn, and so much more as a “litmus test,” said Robert Moskow, a consumer staples analyst at TD Cowen.

“If Procter is doing well, the consumer must be doing well too,” he said.

The company’s 2% growth in overall volume is encouraging, Moskow said. Take Tide laundry detergent as an example.

“It's purported to be eight times more effective than … the prior formulation,” he said. “The message has resonated with consumers. They're buying more of it.”

Moskow said that’s because the higher performance improves the value equation for potential customers.

Innovation matters too, said Erin Lash, a director of consumer equity research at Morningstar.

“It's about things that make a consumer's life easier or enhance it in some way,” she said. “Whether that's a smaller pack size, a larger pack size, something that's easier to open, a more favorable scent.”

Lash said that’s why the Tide maker says it’s still upping its investments in research and development and marketing, despite cost headwinds.

“If you are a consumer that is … really pinching pennies right now, you want to make sure that your clothes are getting clean … each and every wash cycle, and that they're not becoming tarnished,” she said. Because a new wardrobe is expensive.

All that said, Katie Thomas at the Kearney Consumer Institute pointed out budgets are really tight these days, pressured by the rising prices of food and gas.

So product quality will only get companies so far.

“There may be some loyalty there, but … we've also seen brands discounting, so consumers may be chasing the discount and not being as loyal as perhaps we think they are,” Thomas said.

Which is why, she said, brands like Frito-Lay are rolling back prices. And retailers, including Walmart, Amazon, and Target, are leaning into their own loyalty programs and promotions.

Consumers will still spend, she said, if they feel like the prices they’re paying are fair.