Consumers at 'inflection point,' former Toys 'R' Us CEO argues

Former Toys 'R' Us CEO Gerald Storch argued Tuesday that consumers are at an "inflection point" coming off of the "post-pandemic euphoria," where people were excited to travel and do other things.  

Speaking on "Cavuto: Coast to Coast," Storch argued that consumers are "starting to get towards the post-summer headache" amid an inflationary backdrop.

The business leader also warned that there are a lot of "warning signs," which are noticeable in the way consumers have been spending their money. He noted that more people have been shopping at dollar stores and "value places," spending their money on necessities rather than discretionary items, including apparel and electronics. 

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"We say consumer sales are up. They’re up, but they’re up for food," he said. 

"Department stores are really a disaster… you don't want to be trying to sell apparel these days."

Storch provided the insight shortly after it was revealed that U.S. consumer confidence rebounded more than expected in August after three consecutive monthly declines. 

On Tuesday, the Conference Board said its consumer confidence index rose to 103.2 this month from 95.3 in July, surpassing economist expectations, Reuters reported. 

Earlier this month it was revealed that U.S. consumer sentiment climbed more than expected in August as gas prices dropped nationwide, but that Americans' confidence in the economy remains near a record low. 

The University of Michigan’s consumer sentiment index rose to 55.1 in August – up from the July reading of 51.5 and above economists' forecast for a reading of 52.5. That is still more than a 21% drop from just one year ago, when the gauge was at 70.3.

The data came days after the Labor Department reported that the consumer price index, a broad measure of the price for everyday goods including gasoline, groceries and rents, rose 8.5% in July from a year ago, below the 9.1% year-over-year surge recorded in June. Prices were unchanged in the one-month period from June.

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Those figures were both lower than the 8.7% headline figure and 0.2% monthly gain forecast by Refinitiv economists, likely a welcoming sign for the Federal Reserve as it seeks to cool price gains and tame consumer demand. 

Storch told host Neil Cavuto that he is "really worried" about the future. 

"I don’t think we’re taking the right steps to deal with inflation and the economy," he said, arguing that he doesn’t think the Federal Reserve’s rate hikes are the way to tackle the problem. 

"That is a single-minded solution to a big problem and all it will do is drive a stake through the heart of the American consumer eventually," Storch said. 

Federal Reserve Chairman Jerome Powell on Friday delivered a stark message on the state of the U.S. economy at the annual central bank gathering in Wyoming: Inflation remains painfully high, and cooling it will require forceful action that could soon bring "pain" to households and businesses nationwide. 

Even with four consecutive interest rate hikes, including two back-to-back 75-basis-point increases, Powell stressed that the Fed is not in a place to "stop or pause" — an unwelcome sign for investors who were predicting a rate cut next year. 

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Powell's comments confirmed that the Fed remains determined to fight inflation and slow consumer demand, even if it means failing to achieve the elusive soft landing and triggering a recession.

FOX Business’ Megan Henney contributed to this report.