HomeTravelsAmericans are starting to withdraw from travel and restaurants

Americans are starting to withdraw from travel and restaurants

More Americans are starting to wait to book flights, get haircuts, build backyard pools and replace old leaky roofs – in some of the new signs that the consumer engine of US economic growth could run out of steam.

In recent weeks, households had already cut back on large purchases due to soaring prices, but in a worrying twist, the data suggests that consumers are also starting to put the brakes on dining out, vacation plans and even vacations. routine services such as manicures, haircuts and cleaning appointments. Across the country, business owners say rising prices, dwindling savings and fears of a shrinking economy are weighing on household spending decisions.

At Olentangy Maids in Columbus, Ohio, more and more customers are postponing or canceling home cleaning appointments. Some regulars are trying to negotiate lower prices, while others have stopped tipping altogether, co-owner Keith Troyer said.

“There wasn’t a massive drop, but enough to be noticeable,” Troyer said. “A lot of customers have called to say, ‘Hey, my wife was fired. We have to cancel,” or “Can I switch from biweekly to monthly? Before this month, that’s something that almost didn’t happen.

Consumer spending, which accounts for more than two-thirds of the US economy, held steady through April, even with inflation at historic highs. But there are growing signs that the spending streak could be coming to an end.

Retail sales slowed last month for the first time this year, led by a 4% drop in car sales. U.S. flight bookings fell 2.3% in May from the previous month, according to data from Adobe Analytics. And both high- and low-income Americans have started to pull back, particularly in services, over the past four to six weeks, according to an analysis of credit card data by Barclays. The spending slowdown is now focused on services, not goods, the bank found in a new analysis of credit card data.

“Throughout 2022, the narrative has been that as COVID wanes, households will increase their spending on services,” Barclays analysts wrote in a note this week. “And indeed, that narrative has been true for much of this year. But . . . service spending appears to be slowing dramatically.

Spending on services like travel and restaurants, which were up more than 30% from 2021 rates this year, has now slowed to half that pace, Barclays analysis shows.

Customers at Salon Simis in Fairfax, Va., have started cutting in new ways. Clients who previously came every four weeks now go 12 weeks between appointments, owner Ahmet Sim said. Others negotiate for lower prices or opt for partial treatments instead of highlights all over. Overall sales are down 20% from a year ago. Average tips also decreased from about 20% to 10%.

“Last month, I started noticing customers were trading like crazy,” Sim said. “They’ll say, ‘My bill is usually $500 for color and highlights. What can you do to reduce it? “

He tries to work with them, he said, using less expensive color ranges or switching blow-dry services to less experienced stylists. But he’s also feeling the pinch of inflation: Boxes of disposable gloves have gone from $7 to nearly $25 in two years. Hair dyes that used to cost $25 are now closer to $40. Sim raised prices during the pandemic once, but he fears another hike could alienate more customers.

“People are slashing left and right,” he said. “They say, ‘I’m sorry. I can’t afford it anymore.’

These early signs of a slowdown across a wide range of products and industries, including travel and restaurants, challenge the idea that Americans have simply shifted their spending from goods to services. Until now, the hope was that after two years of stockpiling goods like cars, furniture and appliances, Americans would splurge more on vacations, dining out, manicures and other services they had. mostly postponed for much of the pandemic.

Meanwhile, a benchmark showed growth in the U.S. services industry slowed in May to its lowest level since February 2021, according to a closely watched index from the Institute for Supply Management.

“The goods side [of spending] definitely weakening, but if you look closely, so are services,” said Kevin Gordon, senior director of investment research at Charles Schwab. “Restaurant sales are down, travel spending is weakening. The burden on the consumer becomes too great – whether because of inflation or other factors – and this in all income brackets.

Overall, searches for flights on booking site Kayak are down an average of 13% so far this month, compared to the same period in 2019 before the pandemic. Restaurant data from booking platform Open Table, meanwhile, shows the number of people eating at restaurants fell 11% in the week ending June 16, compared to the same week in 2019.

While lower-income families have been hardest hit by inflation, higher-income households are also starting to cut back on spending, especially as they watch their investments – from stock portfolios to homes – falter. of value, Gordon said. Household wealth fell for the first time in two years in the last quarter, largely due to a $3 trillion drop in stock values, according to Federal Reserve data.

Markets continued their volatile descent this week, with three major equity indices compounding the year’s losses and the S&P 500 index closing its worst week since March 2020.

At Posh Luxury Imports, a Los Angeles car dealership that also leases high-end vehicles, owner Omar McGee said consumer demand and their credit scores were significantly lower than six weeks ago.

“I see more credit issues,” McGee said. “More people have cards maxed out or have fallen behind on payments. Ultimately, that means people have to be a lot more careful with their spending.”

Credit card debt, which plunged during the pandemic as Americans used government stimulus to pay off balances, rebounded to historic highs. As of June 1, Americans had $868 billion in consumer debt, up nearly 16% from a year ago, according to Fed data.

And while the more affluent continue to rent Lamborghinis and Bentleys, McGee said there has been a noticeable drop in the number of tourists opting for high-end rentals.

“I can say travel is down, tourism is down,” he said. “A lot of upper-middle-class customers were coming to town and splurging, but you can see that dropping off quite dramatically.”

This consumer hesitation follows months of inflation at 40-year highs. Prices have risen 8.6% over the past year, pushing up the costs of a range of essentials, including gasoline, which hit a record $5 a gallon.

The biggest bright spot in the economy remains the strength of the job market, with the unemployment rate at a pandemic low of 3.6%. Demand for workers neared record highs in April, with about twice as many openings as job seekers. Weekly unemployment insurance claims have recently started to rise, but they are much lower than they have been for most of the pandemic.

With workers still able to find jobs, the Fed moved this week to raise interest rates by three-quarters of a percentage point in hopes of cooling the economy enough to rein in inflation without tipping it over the edge. in the recession. Despite assurances from the central bank that it can pull off a “soft landing,” businesses and households are increasingly worried about the state of the economy as well as their personal finances. Indeed, US consumer confidence has fallen this month to its lowest level on record, according to an index from the University of Michigan.

“The consumer is stressed,” said Douglas Duncan, chief economist at mortgage giant Fannie Mae, which expects a recession next year. “We’re seeing it in declining retail sales and increasing credit card usage. However, we don’t expect things to collapse immediately. It will be a slower decline.

Indeed, small businesses across the country are reporting small signs of customer withdrawal. Morehead Pools, which specializes in luxury pools in Louisiana, is booked until next summer, according to general manager Michael Moore. But, in a sign that high-income consumers may be thinking twice before splurging, new queries are down 30% so far this year.

“Once you go over $4 [per gallon of gas], everybody’s feeling it at the pump and they’re not earning enough up front to get over that,” Moore said on an analyst call hosted by Jefferies this week. “The cost of energy and inflation, then the cost of money. . . it’s really going to drive down demand in our industry.

Noffke Roofing in Mequon, Wisconsin has seen insatiable demand during the pandemic. But lately, economic jitters are pushing many customers to patch up their roofs instead of replacing them. Many are also turning to less expensive materials, such as asphalt shingles instead of cedar.

“We’re definitely starting to see a break,” Chairman Ben Noffke said. “Customers say, ‘I know it’s time for a new roof, but can we save a little more time on this one?’ They think a lot more about their budget.

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