Not-so-happy meals
Axios reported in late October that despite bead “vibes” about the economy, “Consumers are buying higher-priced drinks, pickup trucks and more — a signal from corporate America that the economy appears to be chugging along just fine.” But who are the consumers out buying higher-priced items and propping up spending?
Best Buy’s CEO Corie Barry told reporters last week that “the top 40% of all U.S. consumers are driving two-thirds of all consumption.“
Axios reports that “… Coca-Cola warned that higher-income consumers might be helping hold the line on spending as lower-income shoppers pull back — a months-long economic trend that could be worsening.”
A Facebook post alerted me to the other side of the story. The Los Angeles Times story from mid-November paints a different story. Here are the leading bullets:
- McDonald’s prices have risen so high at the iconic fast food chain that traffic from one of its core customer bases, low-income households, has dropped by double digits.
- The low-income customers at McDonald’s are quickly being replaced by higher-earners, according to company officials.
- The change demonstrates the pressure facing low-income consumers who are being squeezed by higher housing, clothes and child-care costs.
The Times continues:
McDonald’s executives say the higher costs of restaurant essentials, such as beef and salaries, have pushed food prices up and driven away lower-income customers who are already being squeezed by the rising cost of groceries, clothes, rent and child care.
With prices for everything rising, consumer companies concerned about the pressures on low-income Americans include food, automotive and airline businesses, among others, said analyst Adam Josephson. “The list goes on and on,” he said.
“Happy Meals at McDonald’s are prohibitively expensive for some people, because there’s been so much inflation,” Josephson said.
It’s not just fast food.
A recent earnings report from Delta offers yet another illustration. While Delta’s main cabin revenue fell 5% for the June quarter compared to a year ago, premium ticket sales rose 5%, highlighting the divide between affluent customers and those forced to be more economical.
At hotel chains, luxury brands are holding up better than low budget options. Revenue at brands including Four Seasons, Ritz-Carlton and St. Regis is up 2.9% so far this year, while economy hotels saw a 3.1% decline for the same period, according to industry tracker CoStar.
This is why the “K-shaped” economy is making news. HIgher-income Americans are seeing their incomes and wealth increase while “lower-income households struggling with weaker income gains and steep prices,” the Associated Press reported on Monday:
Growth appears solid, yet hiring is sluggish and the unemployment rate has ticked up. Overall consumer spending is still rising, but Americans are less confident. AI-related data center construction is soaring while factories are laying off workers and home sales are weak. And the stock market still hovers near record highs even as wage growth is slowing.
Donald Trump and Mar-a-Lago billionaires are holding lavish, Great Gatsby-themed costume parties and dining on “beef filet, truffle dauphinoise, pan-seared scallops and a trio of desserts including ‘Trump chocolate cake’” while the peasants seeing “Trump cuts” to their SNAP benefits cannot afford a Happy Meal. That is, when they are not fleeing deportation by masked Trump-Noem-Miller immigration raiders.
The Times adds:
A report released this year by researchers with Joint Center for Housing Studies at Harvard University found that half of all renters, 22.6 million people, were cost-burdened in 2023, meaning they spent more than 30% of their income on housing and utilities, up 3.2 percentage points since 2019 and 9 percentage points since 2001. Twenty-seven percent of renters are severely burdened, spending more than 50% of their income on housing.
As rents have grown, the amount families have left over after paying for housing and utilities has fallen to record lows. In 2023, renters with annual household incomes under $30,000 had a median of just $250 per month in residual income to spend on other needs, an amount that’s fallen 55% since 2001, with the steepest declines since the pandemic, according to the Harvard study.
“This is not an income gap. It is a widening fault line,” posted a social media manager on Facebook:
The McDonald’s warning is not a blip. It is a symptom of a society that has drained its middle class to keep its upper class afloat. It is a sign of a country running on the last reserve tank of its promise. And it is a sign of what happens when generations are told to work harder for less while being blamed for struggling inside a system designed to keep them there.
If the most affordable food in the country is slipping out of reach, the question is no longer whether the economy is in danger. The question is how much longer the center can hold before it gives way entirely.
(h/t LS)
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