In a static economy:
X percent of restaurant receipts come from the “upper” income.
Y percent of restaurant receipts come from the “middle” income, and
Z percent of restaurant receipts come from the “lower” income.
If the economy is truly static, those would stay the same.
If the economy is growing, presumably all three would grow.
If the economy is shrinking, presumably all three would shrink.
But, in our current economy, restaurant spending is up among one group and down among others. (There are not too many possible explanations for this folks.)
“The lower income consumer does appear to be pulling back,” said Rick Cardenas, Darden president and CEO, on an earnings call with analysts . . . .
“Third-quarter transactions from households with incomes above $150,000 were higher than last year,” he said. “Transactions from [household with] incomes below $75,000 were much lower than last year and at every brand. And at every brand, transactions fell from [households with] incomes below $50,000, similar to Q2. This shift was most pronounced in our fine-dining segment.” . . .
So yeah, if one were to measure just “the restaurant economy” then yeah the economy is growing. (“Whoo Hoo the economy is great!”)
And yet, taken together with the Darden’s restaurant information (above)
we see the “strong economy” is just families in the top half selling stuff to each other.
Maybe this time “the economy is great” really means “It’s great on paper,” or “it’s great for some.”
This type of trend is also indicative of our changing culture. The wealthier people are the less children they have, if any. Also, fewer people are having children. Part of this culture today is eating out or doing take out much more frequently than what many of us did, and those with the money and the fewer children will continue to go out to eat.
For myself, I don’t dine out that much any more - but it has nothing to do with financial reasons. I’m trying to lose weight (100 lbs. so far since May), and the crap they serve at restaurants tends to be extremely bad for weight loss purposes. When I do dine out, I typically pour over the menu to find the stuff with the least food, lowest calories, and preferably baked or grilled. I won’t eat anything fried, nor will I eat bread. But at home I can control what goes into my body a lot better.
I can’t quite prove it, but I suspect the single largest factor in the economy right now is still that one-third of US households owned a home with a mortgage at the time when they hit the mortgage-rate jackpot.
I’m not talking about 1-percenters or whatever and I truly and happy for them.
(I once calculated they saved an average of $1,500/month) They are spending that money at places like Olive Garden, and they are taking trips, and many of them are wisely putting the money into stocks and investment properties. Good for them, both groups (sincerely)
If there is anything to be upset about here, it is politicians and central bankers etc. pretending that one deserving-subset doing well, means the entire economy is doing well.
Both the wealth effect and the income effect are so well documented that they go unquestioned now. Economists make many mistakes (and often disagree with one another) but one mistake they don’t make is to deny the existence of those very real phenomena.
Interestingly, I once read that one of Alan Greenspan’s foundational pieces of research was an attempt to quantify exactly how much consumption spending would increase (in the broader economy) for each incremental reduction in home mortgage rates.
It would only make sense that consumption spending would increase with more expendable cash. Did Greenspan come up with anything?
I don’t doubt what you’re saying because most people live and spend based on their income. I don’t know why it would be up among certain groups. I can only guess that people with more money are better able to prioritize what they want to do. While those in the lower income bracket have little room to do so.
The lower income bracket took a large hit in disposable income from inflation. Eating out is a discretionary expense. Their mandatory expenses are consuming most, if not all of their disposable income. We know this because we see the increase in credit card balances and retirement plan withdraws. A family of 4 at a sit down chain restaurant is probably going to drop $120 plus tax, $50 plus tax at a burger joint. This is belt tightening time in action due to the disparate effect inflation has on the lower income sector of the population.
