Little treats are helping to keep the US economy afloat. At least for now.
While Americans dial back purchases of pricey items like boats and fridges, companies and economic data both point to a consumer who’s willing to pay up for inexpensive indulgences. Starbucks Corp., Chipotle Mexican Grill Inc. and PepsiCo Inc. have all said their sales remain strong as shoppers shell out for $7 lattes and $11 burrito bowls. Spending for things like airline travel, luggage and gambling is holding up, too.
“It appears that the savings cushions were probably a bit bigger than we previously estimated,” said Brett House, an economics professor at Columbia Business School. “As a result, there’s still a little bit more gunpowder for affordable luxuries, and experiences and other services.”
On Thursday, Starbucks reported strong sales as more customers came to its stores and upped their spending, signaling that even tough economic times can’t pull people away from their iced lattes. They’re also splashing out for food, including Starbucks’ new baked apple croissant, the company said. Fried chicken seller Wingstop Inc. said its business is booming, too, thanks to Americans’ willingness to binge on inexpensive goods.
“They feel like they deserve to treat themselves or reward themselves because they’ve cut back,” Chief Executive Officer Michael Skipworth said in an interview Thursday. “They want to splurge, they want to indulge.”
Frito-Lay chips maker PepsiCo, meanwhile, has been able to keep raising prices for its snacks and beverages, passing along the boost in commodity prices that it’s paying. The company says the consumer is “pretty healthy,” and not shying away from splurging for a soft drink and bag of chips when filling up the gas tank. Coca-Cola Co., which makes Sprite soda, also recently said that shoppers are absorbing price increases, and raised its outlook for revenue growth this year.
The data paints a picture of an American shopper who’s still willing to pay for small treats despite persistent inflation in essential categories like gas and groceries. Economists seem to agree that strength in the US labor market is fueling outlays. Yet it’s unclear if the binge will last, given elevated interest rates and the resumption of student-debt payments, which are taking a substantial chunk out of paychecks. Other risks are popping up, too, like the threats of a potential government shutdown and a wider war in the Middle East.
While McDonald’s Corp.’s latest quarterly results did beat expectations, higher prices did most of the work. In a troubling sign, customer traffic to US locations dropped for the first time this year. The decline was driven by consumers making less than $45,000 a year, the company said.
For now, though, consumers like Lyndsay Criscitello are largely shrugging off economic concerns. “I love a good sweet treat, I’m gonna be honest, and you still gotta treat yourself in a troubling economy,” she said. It’s not necessarily logical, but the 22-year-old recent college graduate continues to allocate about $30 a month for Starbucks while struggling to balance the costs of basic goods.
“It’s definitely upsetting a little bit because I think everyone wants to keep enjoying things like Starbucks as much as they can,” said Criscitello, leaving a Starbucks in Washington, DC, holding a grande matcha tea latte worth nearly $7. “But it gets harder when prices are driven up, and other expenses kind of overtake that area of spending.”
Despite wavering sentiment, other categories such as vacations, entertainment and recreation are powering forward as well. Consumer spending on sports equipment and firearms jumped nearly 12% in the July-to-September period, according to US government data from last week. Luggage spending climbed 22%, while restaurants and accommodations rose 5% and 8.9%, respectively.
American Airlines Group Inc. and Delta Air Lines Inc. are still seeing robust demand for flights. American is predicting an improvement in holiday demand this year versus 2022, while Delta said that passenger revenue from international trips jumped 35% in its most recent quarter.
People are still spending disproportionately on experiences, including travel and dining out, Columbia’s House said. He added the caveat that the spending party is likely to get smaller.
“People are willing to spend on experiences because it feels like investing in the things and people they love,” said Kelly Jones, a financial adviser at financial-services provider Thrivent. “It’s part of living a legacy versus leaving one.”