Key Takeaways
A wave of warnings from top US executives suggests the resilience of the American consumer is cracking under the pressure of gasoline prices that have surged to nearly $4.56 a gallon, threatening to derail a key engine of economic growth.
"They are literally at the end of the month running out of money," Kraft Heinz CEO Steve Cahillane said in an interview this week, noting that lower-income groups are showing negative cash flow and are being forced to draw down on savings.
The concern is now widespread across corporate America. Appliance giant Whirlpool noted a 15% drop in industry demand, a slump its CEO compared to the 2008 financial crisis, prompting a significant cut to its full-year profit forecast. McDonald’s said it sees "heightened anxiety" among consumers, while Planet Fitness saw its stock suffer a record one-day drop after it slashed its annual forecast, citing lower-than-expected membership sign-ups in a sign that discretionary spending is being curtailed.
This erosion of consumer spending power represents a significant threat to the broader US economy. For months, the consumer has unexpectedly powered growth despite high inflation, but sustained high energy costs are proving to be a more difficult hurdle. With oil companies signaling no immediate plans to increase production, high prices at the pump may persist, increasing the risk of a wider economic slowdown.
The data supports the anecdotal warnings from executives. The US savings rate fell to a three-year low in March as consumers increasingly rely on savings and credit to cover everyday expenses. A study from the New York Fed showed that lower-income consumers are already actively reducing their gasoline consumption to manage their budgets.
The impact is being felt across various sectors. John Peyton, CEO of Dine Brands, which owns Applebee's and IHOP, said on an earnings call that "price-sensitive" customers "seem to be staying at home more." This pullback, for now concentrated in lower-income groups, is a clear signal that discretionary budgets are tightening.
This article is for informational purposes only and does not constitute investment advice.
