Early Warning on the Economy?

[marko]

I was talking to a restaurant owner here north of Boston. He has a pub style place in a very touristy Halloween town where 80% of his revenue for the year arrives in October.

He said that while he's still quite busy, business "has been noticeably off" from previous years. "People used to come in for lunch and spend $70 for two. Now they split an appetizer and get two glasses of water". He noted that other restaurant owners have commented the same. A higher end restaurant in town had open tables at noon last Saturday...unheard of in October! A million tourists are still expected for the month, but seem to be watching their wallet a little more.

DW was relating this story to an acquaintance. It turns out that she owns an Airbnb in the same town. She said "I'm glad you told me that! My bookings have been down a bit and I was wondering why. I'm still busy but people seem to be shortening their stay somewhat "

So, all of this is anecdotal but it could be a canary in a coal mine on a slowing economy. People still spending but tapping the brakes just a bit?

 

[DrRoy]

All we can do is wait and see.

 

[street]

I see the same thing here stores and eating places are slow. Of course, this isn't metro area business, but we have noticed people aren't sending money because they can't. Every necessity we need to live has gone up in price and I mean everything. There isn't any left over to spend.

Times are getting rough, and I don't see it getting better anytime soon.

 

[old medic]

We have a small Tavern here that was always slammed at lunch time. Granted I haven't been out much, but dropped in After PT Tuesday at 12:15 and there was 3 other folks in there. One more showed up before I left.

 

[disneysteve]

Restaurant prices have skyrocketed. Plus many have started charging an extra 3% for paying by credit card. The result is people are eating out less. When they are eating out: they’re ordering differently. They’re skipping appetizers and desserts and getting less costly entrees. They’re drinking water instead of a $4 soda or $15 cocktail.

You can’t keep hiking prices and expect nobody to notice.

 

[Dash man]

A different point of view that surprises us. We’re trying to find a contractor to install new siding on our home at the Jersey Shore. We’re getting ghosted by a lot of them. An older home seems to be too much work for them.

 

[marko]

A different point of view that surprises us. We’re trying to find a contractor to install new siding on our home at the Jersey Shore. We’re getting ghosted by a lot of them. An older home seems to be too much work for them.

It could be that home issues are more of a necessity. Tourism is 100% discretionary and likely the first to show fraying.

If your roof is leaking you have to fix it regardless.

 

[Midpack]

We were on vacation last week at HHI, and restaurant prices were noticeably higher everywhere. Seemed like restaurants hiked drink and appetizer prices first, now entrees and desserts are up too. Tip % just go higher on top of that. We normally eat dinner out three times a week, but we’re choosing lower price point restaurants. https://www.restaurantbusinessonline.com/financing/restaurant-menu-price-inflation-highest-40-years

The cost of our hotel wasn’t pleasant either…at this rate we'll decide it's just not worth the expense anymore.

AirBnB traffic has been down for a while from what I’ve read, and that may only get worse. I know their stock has been sliding downward since 2021.

 

[street]

A different point of view that surprises us. We’re trying to find a contractor to install new siding on our home at the Jersey Shore. We’re getting ghosted by a lot of them. An older home seems to be too much work for them.

It seems that problem started when covid came about. It hasn't got any better even when people say they don't have enough money to live. Plenty of great opportunity out there for work and to prosper but work seems to be the last people want.

 

[dknighd]

Prices do seem to be going up faster than earnings. Especially at restaurants where they have a double wammy - higher employee costs, and higher supply costs.


There also seems to be higher uncertainty than normal. But I'm not certain about that


Maybe if people cut back on spending at restaurants there will be more people available to hire for other things? AKA putting siding on a house, or related. . .


Maybe younger people are deciding they need to spend less and save more. A good thing. And retired people can't increase spending.

 

[Andre1969]

I see the same thing here stores and eating places are slow. Of course, this isn't metro area business, but we have noticed people aren't sending money because they can't. Every necessity we need to live has gone up in price and I mean everything. There isn't any left over to spend.

Times are getting rough, and I don't see it getting better anytime soon.

I just got a reminder of this yesterday. I was out running some errands, and happened to be near the discount liquor store that I frequent, so I figured I'd stock up a bit while I was there.

I've been buying Milwaukee's Best Ice rotgut for ages now, because my housemate actually likes it. And I can tolerate it. For some reason, this store hasn't had a 30-pack of it in ages, but sells a 15 pack. On the case it's advertised as "3 free beers!" or something like that. Anyway, it's been $7.29 for the longest time. But, this time around, $8.99.

Another buck-seventy isn't going to put me in the poorhouse, but that's still a 23% jump. Meanwhile, my investible assets haven't made nearly that big of a jump this year. And my salary? I'm lucky if I get 3%.

I usually drink Yuengling. It's up to $20.99 for a 24-pack of bottles. I can remember paying $16.99, and it doesn't seem all that long ago...but probably longer than I think. I've also noticed that I don't drink as much as I used to, and neither does my housemate. With my housemate, it's because he's trying to be healthier, but with me, I wonder if subconsciously, I've been scaling back because of the higher prices?

I usually don't drink soda, with the exception of ginger ale, and my housemate gets that stuff in bulk at BJs. Sometimes when I'd go out to eat, I'd get a soda. But lately, I've just been getting water.

But yeah, I think these "death by a thousand cuts" minor expenses do add up over time, and something has to give, somewhere.

 

[Bigdawg]

Prices do seem to be going up faster than earnings. Especially at restaurants where they have a double wammy - higher employee costs, and higher supply costs.


There also seems to be higher uncertainty than normal. But I'm not certain about that

I'm certainly concerned about you not being certain about higher uncertainty.

 

[Aerides]

Travel and Restaurants are a niche that has ballooned in the past 3 years, so if anything, them cooling is a good thing, vs. a warning. Return to reality will help with consumer confidence.

So I don't think this sector is an overall-economy indicator - the next 2-3 months of retail spend will tell that story.

 

[SecondCor521]

My local area seems to be doing well. I think I've noticed an uptick in economic activity.

Nationally it's more of a question mark. The talking heads have been predicting a slowdown or mild recession for at least a year now. There is the old saw that economists have predicted 11 of the last 5 recessions.

 

[CaptTom]

I, too would look beyond the travel & restaurant sectors for more solid indicators. There was a very noticeable post-pandemic spike (bubble?) in these sectors. Coming back down to more reasonable levels wouldn't be unexpected.

That said, yes, inflation has been downright brutal in those areas. Where everything else went up 25-40%, hotels, Air B&Bs and restaurants have raised prices by much more. I'd guess around double that (50-80%) and more.

Of course their costs for labor, fuel and food have gone up, but I think in some cases people are starting to recognize that at least some of these increases have a large component of pure greed. Those of us who are not in the BTD crowd have a visceral reaction to that sort of thing and will stop going, or cut way back, just out of resentment and a feeling of being taken advantage of.

Good. I hope these companies take notice.

All that said, I think there is some pull-back going on across the whole economy. At least, I hope so.

 

[MichaelB]

I was talking to a restaurant owner here north of Boston. He has a pub style place in a very touristy Halloween town where 80% of his revenue for the year arrives in October.

He said that while he's still quite busy, business "has been noticeably off" from previous years. "People used to come in for lunch and spend $70 for two. Now they split an appetizer and get two glasses of water". He noted that other restaurant owners have commented the same. A higher end restaurant in town had open tables at noon last Saturday...unheard of in October! A million tourists are still expected for the month, but seem to be watching their wallet a little more.

DW was relating this story to an acquaintance. It turns out that she owns an Airbnb in the same town. She said "I'm glad you told me that! My bookings have been down a bit and I was wondering why. I'm still busy but people seem to be shortening their stay somewhat "

So, all of this is anecdotal but it could be a canary in a coal mine on a slowing economy. People still spending but tapping the brakes just a bit?

An economist I follow (Matt Klein) has frequently written that price inflation in restaurants and rentals are leading indicators of general inflation. If that were the case, this would be a sign of lower CPI ahead. Prices in hospitality react quickly to demand, so falling demand will soon be met with a decline in prices.

There has been a lot of research looking for reliable leading indicators of economic growth. So far, they focus on other areas and hospitality hasn’t make the list. In this case I would conclude that “tapping the brakes” is an indication prices are too high, but not evidence of falling overall demand.

 

[LateToFIRE]

I've not noticed economic activity slowing in my neck of the woods - if anything, as others noted, getting contractors to do anything is a huge challenge due to a combo of high demand and labor shortages. Popular restaurants seem about as packed and difficult to reserve as usual. But, have observed major price increases for lower quality and worse service - so the value proposition has deteriorated significantly.

I suspect people (especially younger folks) are getting squeezed by a combo of the withdrawal hangover from pandemic stimulus dollars and suspended student loan payments (now restarting in Oct.) + cumulative effects of increased cost of living inflation, which have more than offset gains in income. I think there was some amount of post-pandemic emotional relief past year or two, but now people are returning to harsh reality... summer's over, work from home is over, etc. maybe that had fueled a hedonistic YOLO attitude for awhile, but the bill is coming due and credit card's have hit their limit.

 

[Andre1969]

Nationally it's more of a question mark. The talking heads have been predicting a slowdown or mild recession for at least a year now. There is the old saw that economists have predicted 11 of the last 5 recessions.

Heck, when has there NOT been doom and goom in economic forecasts? And it spills over to other forms of entertainment. I have the tv on in the background, and just heard a frantic "And you must have heard about the stock market! Poor, poor May-Belle is home right now tightening her belt!"

And, where did I hear that? "Bachelor Father." An episode that aired May 11, 1961.

**Edit...nevermind. Turns out, May-Belle's father just said that, as an excuse to cut off her allowance. He gets called on it a moment later, when Bentley Gregg, the main character (John Forsythe) asks him, "Do you normally tighten your belt when the stock market goes up?!" Guess it pays to watch things to the end.

 

[LateToFIRE]

An economist I follow (Matt Klein) has frequently written that price inflation in restaurants and rentals are leading indicators of general inflation. If that were the case, this would be a sign of lower CPI ahead. Prices in hospitality react quickly to demand, so falling demand will soon be met with a decline in prices.

There has been a lot of research looking for reliable leading indicators of economic growth. So far, they focus on other areas and hospitality hasn’t make the list. In this case I would conclude that “tapping the brakes” is an indication prices are too high, but not evidence of falling overall demand.

With restaurants, you have to consider the fixed-cost component - ability to lower prices is limited as still have rent to pay, equipment to lease, and some minimal level of labor and inventory. I think more like to see closures than lower prices.

 

[MarieIG]

Time will tell. But if I wanted to cut discretionary outflows spendy restaurants and luxury travel would seem like low hanging fruit.

I recall going out to lunch pre pandemic with DH. The food was not great, the waitress was snippy and the cost was over $90. (Actually I have really not been bowled over by restaurant food in several years.) Our last forey resulted in me swelling up like a balloon. I had really thought we'd be eating out frequently in retirement but after a few fails I have really tried to circumvent dining out.(I enjoy the company but the food - not so much.)

 

[target2019]

You can go to the Federal Reserve Bank site for your region and find the data.

Tourism is an indicator. Restaurant prices probably are a better leading indicator. You could watch the price of a pizza and see that at some price point sales are gonna sink.

It's inevitable that we'll slip into recession. But we're not all going into the pool at the same time.

 

[Andre1969]

I'm really surprised that housing prices haven't stalled out the economy. In the past, it seemed like we had overpriced houses or high interest rates, but usually not both at the same time. At least, not for long. For example, this caught my eye. I used to live in this neighborhood, but in a condo, and even now, I'm only about 15 minutes away...

https://www.redfin.com/MD/Crofton/1776-Sharwood-Pl-21114/home/9992273

The thing that really hit me was the estimated monthly payment, $2738/mo, with 20% down! That's an awful lot of money, in my opinion, for something that to me is one step up from a starter home.

To put it in perspective, that's about what my monthly payment is, on a 4br, 2.5 bath two-story, roughly 2500 square feet, swimming pool, 6.5 acres. I paid $630K back in 2018, but had to put 25% down. I refinanced twice, and currently my rate is 2.875%, on a 30 year fixed, $468K starting principal.

My property taxes are around $5600/yr, but that includes a homestead tax credit. If I sold, the new buyer would have to start off with the full amount, no credit, and it would be around $8,000/yr.

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

These high prices, and high interest rates, have to be putting a hurting on just about everyone. Not only younger people buying for the first time, or those moving up, but even older people, looking to downsize. You would probably be swapping a bigger house with a low interest rate for a smaller place with a higher interest rate, but on a monthly basis, it could very well be a wash. Or you might actually end up paying MORE, for the smaller home!

 

[W2R]

We are still eating out as much as usual, in other words, we are picking up take-out for almost every meal, every day. And yes, looking over my records, our restaurant spending has gone up a bit this month compared with last year in early October.

Frank has noticed that even on game day, fewer customers are appearing at local sports bars. The waitresses don't know why, but apparently something's up.

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

That's for sure! I haven't made a house payment since 2006, and they have really gone up since that time.

 

[Ready-4-ER-at-14]

Per the federal news network dot com site dated august 31, 2023 federal workers will get an average increase of 5.25% pay raises in 2024.

I've been reading the cola for social security is an average of 3.1% for 2024

Forbes May 22,203 says menu prices increased 8.2% in 2023 in US.

Google says in 2022 federal debt was ~120% of gross domestic product.

Nerd wallet oct 12, 2023 says current inflation rate is 3.7%.

Per the conference board dot org survey 2023-10-17 median salary growth in 2023 was~4%.

Assuming these statements true, it seems that certain areas must be inflating restaurant prices more than others.

per eatthis dot com 4/10/23 Mcdonalds had increased prices 10% by 3rd quarter a year earlier.

Any how one apparent truth I have seen over time is seniors depending on social security and savings from the lower third or quarter of gross income do not have an opulent life in the US.

KFF health news org July 25,2022 which uses an elder index showed how seniors often living alone that many can not afford basic necessities. (54% women) 45% men.

So the fact that we ,as possibly older people, are seeing luxuries like new cars and dining out become more occasional luxuries and not business as usual expectations is kind of expected. When saved money is intentionally devalued seniors often pay for government extravagances by cost of inflation. Going out for a meal for two can now easily cost about two weeks of my net income working minimum wage for a city a long time ago.

Just save and invest 120% of your gross income for 50 years if poor and easy affluent retirement can be your destiny. ; )

 

[NameTaken2]

"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.