Early Warning on the Economy?

[LateToFIRE]

Thinking about the last 2 years felt like as we emerged from the pandemic, people went on a crazy spending spree. Couple years ago looked like everybody, everywhere went out and bought a new car or pick-up truck or boat or camper or vacation home. Okay, I get that some priorities changed, but where did all the money come from? And as COVID subsided, seemed like suddenly all the pent up travel demand hit, everybody booking cruises, big vacations, etc. Where did all the money come from?

Big picture, a YOLO attitude kind of griped the U.S. and many people were willing to live for now at the expense of tomorrow - even more so than usual. Plus, this thing where people quit their jobs to "take the summer off". I know a handful of young people who did this. Whah? I never in a million years would have had the nerve to do that. Of course, with labor market softening this might prove short-sighted.

Anyhow, I think between the gluttony and the prodigious use of cheap credit, combined with the blunt impact of inflation and high borrowing costs, we are entering a national hangover. Parties over, lights turned on, headache from glare.

Just my anecdotal thoughts.

 

[Music Lover]

3 years ago at a local favourite we used to be able to get 2 burger platters and a beer each for $35 after tax. It's now $44.

A chain restaurant wing night where we met friends used to cost us about $30 for a dozen wings and 2 drinks each. It's now $42, plus they discontinued the wine that my wife likes.

Another well liked local restaurant we attend used to cost about $90 (expensive for us) for 2 meals and 2 drinks. That's our "expensive night out" place. The last time we went it was $115. Sometimes we'd go there for happy hour (it's walking distance from home) to try out some craft beers. 20 ounce draft that used to be $9 ($6 at happy hour) are now $12 ($9 at happy hour).

It's reached the tipping point for us and we rarely go to restaurants any more, basically only when it's a social gathering. And when we do go we rarely have a full meal, either sharing one or just having an appetizer.

We bought a smoker and a quarter of a cow and now for $25 we can have another couple over for drinks and a great meal.

 

[COcheesehead]

The biggest warning came from Powell when he said we will have to have below normal growth to bring inflation under control.

 

[folivier]

I always enjoy a good glass of iced tea. But it really pains me to pay $4 or so for a watered down glass of tea. So I usually just get water, so far it's free but who knows how long that'll last?
We normally go to a locally owned restaurant or cafe for lunch, seldom do breakfast or dinner. But as prices continue to climb we'll go eat out less frequently.

 

[SecondCor521]

"Local area" reports could be enhanced by posters describing the area's demographic.
ie: A reasonable cross-section of all income levels, or mainly retirees now enjoying 5%+ returns on cash in their large portfolios?
The deeper the pockets, the less spending adjustments required (if any).
IMHO the rising cost of living has resulted in "average" Americans adjusting discretionary spending.

Mine was from Boise. It's a capital city, the center of the state's population, has several large anchor employers, and a large state university. We do have a lot of workers, retirees, and people who are working but well off. We also tend to be a state that gets population inflow from other states with higher costs of living, so it's not uncommon for people to move here from the West Coast and be able to buy nicer homes and spend more from their accumulated wages and home equity in more HCOL areas. It's actually driving up the cost of living here and creating somewhat of a housing affordability issue because of the disconnect between home prices and local wages.

My son has a business which could be described as seasonal service discretionary and he caters to higher end individuals. I don't think he's seeing a drop off; as you note higher end folks don't need to cut back if they don't want to. If he did see a drop off, it would be hard to tell if it's the economy or a seasonal effect since he is just completing his first year in business.

 

[Teacher Terry]

Reno is a tourist destination and my Dil works as a cocktail waitress even though she has a BA because the tips are phenomenal. She makes 85/95 k per year. She said things aren’t slowing down here. For the past two years if you go to a restaurant for a sandwich and fries, drink water, tip 20% , it costs 20 or more. I cut back on my eating out.

My friend and I are going to San Luis Obispo for 6 days and booked a nice motel for 500 for 4 nights so felt like that was a good price. We are taking Amtrak so no driving stress. Train and hotel costs 500 each so probably will spend 1k each total which is fine for an escape from winter in February.

 

[OldShooter]

There are probably a hundred thousand people nationally micromeasuring public and private economic parameters and none have a clue about the future. I save myself a lot of measuring time by simply accepting the fact that I don't have a clue either.

I think restaurant prices are up because they have found that people will pay the higher prices, not because their costs have gone up in the same proportion as their prices.

 

[Midpack]

If I was to try and buy my house today, I shudder to think what the monthly payment would be!

+1. We just moved into our current house in 2019, and we wouldn't even be looking at houses in this neighborhood anymore. Homes are WAY more expensive than we'd want to pay. But most homes are selling in a week or less still...

 

[Midpack]

I think restaurant prices are up because they have found that people will pay the higher prices, not because their costs have gone up in the same proportion as their prices.

That along with people don't cook anymore. Many of my (senior) peers buy processed foods and ready meals and heat them up at home. And it's astonishing how often I see DoorDash, UberEats and other deliveries in my neighborhood! They do have families and both parents work, but DW and I both worked our entire careers as well, and we were always able to cook from scratch 5 days a week - still do 4 days a week now.

I have also noticed that when you go to most restaurant websites now just to look at the menu, you almost have to start an online order to see the menu! Even with some pretty expensive restaurants, not just fast casual or fast food.

 

[jollystomper]

There is a another thread that delves into this in detail, so I will just summarize. In our area, at Carmax and 2 other "bottom line price" dealerships, I am seeing used car inventory increasing and prices falling as compared to the beginning of this year.

From a restaurant perspective, there is a diner we used to eat at for lunch after bowling, a couple of times a week. The bowling alley closed early last year so we do not get to that diner that often. We ate there this week, for dinner, and prices have gone up, but there are still surprising bargains. I had soup, salad, a ribeye steak, onion rings, and french fries for $15. The servings were so large (one reason we eat here) that I took half of the steak and almost all of the french fries home for dinner the next evening. We really could not tell if they had less customers. It was maybe half full but it was a mid-week evening that tends not to have a lot of people eating out.

 

[Gumby]

That along with people don't cook anymore. Many of my (senior) peers buy processed foods and ready meals and heat them up at home. And it's astonishing how often I see DoorDash, UberEats and other deliveries in my neighborhood! They do have families and both parents work, but DW and I both worked our entire careers as well, and we were always able to cook from scratch 5 days a week - still do 4 days a week now.

I have also noticed that when you go to most restaurant websites now just to look at the menu, you almost have to start an online order to see the menu! Even with some pretty expensive restaurants, not just fast casual or fast food.

The young couples who have moved onto my street since Covid (most of whom work from home) don't seem to cook. Door Dash cars are constantly on my street, or we see them walking to one of the many restaurants just a few blocks away. But I understand; we ate out far more often when we were working because we were tired and had so much else to do.

 

[Chuckanut]

The OP’s two examples are both related to the tourism business and I am not surprised to find things slowing down. Dining has gone up quite a bit over the last two years. My local family owned restaurant used to be $20 for lunch for two, including tip and taxes. Now, the only way to keep it under $30 is for one person to drink tap water. Our local minimum wage will soon go over $16 an hour. Somebody has to pay for that.

Hotel prices are very high. A few years ago I could get a nice hotel room for $120 a night, sometimes less. Now that same room is $170+, often over $200. I am working on a road trip next year and finding that I will probably cut 3 to 5 days off of it because room prices are so very high. At some point a person just has to say “NO”.

Just for the fun of it, I priced rooms in towns near Sturgis SD for the time of biker rally. $500 a night for a low-level Wyndham hotel. It’s not even a Holiday Inn Express with the nice hot breakfast. Do bikers have that much money to spend? Or do they cram four biker dudes into a two queen bed room. The thought makes me shudder.

This morning’s business report says that the 10 year Treasury briefly breached 5% last night. We will need it.

 

[Montecfo]

If tourism falters look out below. That has been the strongest part of the economy.

And the Conference Board's index of leading economic indicators has been down every month since April 2022.

 

[Gumby]

The 2yr vs 10 yr yield curve inverted in July 2022. It has been 15 months now, and that historically has been the length of time after a yield inversion when recession sets in (although an inverted yield curve has not always led to a recession). I guess we'll see.

 

[Car-Guy]

My best gauge is the regional casino traffic, especially on weekdays. Way down.

 

[DJRR]

Thinking about the last 2 years felt like as we emerged from the pandemic, people went on a crazy spending spree. Couple years ago looked like everybody, everywhere went out and bought a new car or pick-up truck or boat or camper or vacation home. Okay, I get that some priorities changed, but where did all the money come from? And as COVID subsided, seemed like suddenly all the pent up travel demand hit, everybody booking cruises, big vacations, etc. Where did all the money come from?

Well, when dat der Covid shut everything down they couldn't buy dem lattes and avocado toast. But seriously, not spending money on top of tax credits of $2,500+ meant a lot of savings. Also remember that minimum wage/restaurant workers got an additional $15 per hour from emergency unemployment when they were not allowed to work. Meaningless where I live, but probably the first living wage ever for people in a lot of places. Combine that money with cabin fever and you have a big spending burst.

 

[Flyfish1]

Djrr: Rush!

 

[JoeWras]

I kind of "feel" this way too. It is a mixed bag. In my area, contractors are starting to be easier to contact, less ghosting.

But the official Census and BEA numbers say something different. They say "Food Service" is still strong, although they report in dollars, which may reflect the price rises. There could be an undercurrent of dropping traffic that doesn't get into these numbers since the restaurants blasted prices through the roof.

Source BEA PCE: https://www.bea.gov/data/personal-consumption-expenditures-price-index

Source Census: https://www.census.gov/retail/marts/www/marts_current.pdf

Food numbers from Census attached:

 

[audreyh1]

We bought a smoker and a quarter of a cow and now for $25 we can have another couple over for drinks and a great meal.

Yeah, that’s what it comes down to, although it wasn’t price that kept us out of restaurants. With a little effort and willing to pay for quality ingredients you can make fantastic food at home. Restaurants not so reliable.

 

[O2Bfree]

Djrr: Rush!

I noticed that too—great first album, even without Peart.

 

[Slater]

Im frugal & these are my thoughts...
In those 2 years, all dining, take-out, fast food, etc has DRASTICALLY increased in cost...
Think all these people are eating out less...
They cant afford eating out like they use too, & when prices keep going-up at some point enough is enough, you have to make a change...
Its like a fast food drive thru combo meal for 2 could be almost $40....
Imagine if you do that for an entire family of 4+

 

[Midpack]

Im frugal & these are my thoughts...
In those 2 years, all dining, take-out, fast food, etc has DRASTICALLY increased in cost...
Think all these people are eating out less...
They cant afford eating out like they use too, & when prices keep going-up at some point enough is enough, you have to make a change...
Its like a fast food drive thru combo meal for 2 could be almost $40....
Imagine if you do that for an entire family of 4+

Maybe in San Diego, but I don’t disagree with the trend…

 

[marko]

The OP’s two examples are both related to the tourism business and I am not surprised to find things slowing down. Dining has gone up quite a bit over the last two years. My local family owned restaurant used to be $20 for lunch for two, including tip and taxes. Now, the only way to keep it under $30 is for one person to drink tap water. Our local minimum wage will soon go over $16 an hour. Somebody has to pay for that.

OP here. Correct. I cited tourism dining and lodging. People who by definition do not have the option to eat each meal at home but do have the option for how long they stay. They seem to be cutting back on both and maybe the lodging component alone would've more clearly illustrated the question than the more subtle restaurant input.

My point was wondering if tourism--largely a discretionary expense-- might be a valid early indicator of a slowing economy. The town in question still has no shortage of tourists and always had higher than average prices, but the underlying overall spending is markedly off from previous years.

In my view, it's not so much about restaurant prices but more about people (subconsciously perhaps?) being more aware of how much they're spending. Maybe they're hearing the rumble of thunder?

A good thing IMO.

 

[MichaelB]

OP here. Correct. I cited tourism dining and lodging. People who by definition do not have the option to eat each meal at home but do have the option for how long they stay. They seem to be cutting back on both and maybe the lodging component alone would've more clearly illustrated the question than the more subtle restaurant input.

My point was wondering if tourism--largely a discretionary expense-- might be a valid early indicator of a slowing economy. The town in question still has no shortage of tourists and always had higher than average prices, but the underlying overall spending is markedly off from previous years.

In my view, it's not so much about restaurant prices but more about people (subconsciously perhaps?) being more aware of how much they're spending. Maybe they're hearing the rumble of thunder?

A good thing IMO.

Is this slowing business a sign of overall weakening demand or a response to too high prices? A fair question. I’d look at the PCE income and spending data for confirmation, or at least correlation. You can find it here

Over the last couple of months, real (inflation adjusted) spending has grown a bit faster than real incomes. That’s usually not sustainable. This data is “noisy”, with lots of month to month variation, so it needs a couple of months with the same trend before confirming one way or another.

Clearly, however, it could be an early sign of wider weaker demand.

 

[Aerides]

They seem to be cutting back on both and maybe the lodging component alone would've more clearly illustrated the question than the more subtle restaurant input.

In my limited experience, lodging increases have outpaced dining. Most nicer hotels have far higher prices in their high seasons than 2019. Like...double. And decent 3* places charging much more than ever before. Recently had to pay $300 for a Residence Inn, in a non tourist area, and definitely not high season for it!

There is a lot of room for hotel prices to fall down to earth.

The few local restaurants I frequent are not doing the tip add or 3% service fee shenanigans, and seem to be doing fine, but I don't go often enough, or at prime time, or notice!