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US consumers are reining in spending on travel and leisure, hitting businesses including Disney theme parks, Airbnb home rentals and Hilton hotels as questions grow about the health of the economy.
Warnings from several companies’ earnings statements this week offered the latest evidence of belt-tightening among American households as their pandemic-era savings evaporate after years of persistent inflation.
A weak jobs report last Friday set off investor doubts about whether a slowing US economy can achieve the soft landing markets had expected, leading to volatile stock market trading and putting pressure on the Federal Reserve to cut interest rates faster than planned.
The corporate earnings season has already provided ample evidence of strain on consumers whose spending makes up two-thirds of the US economy. Companies as varied as McDonald’s and consumer goods giant Procter & Gamble have reported weakening sales trends.
On Wednesday, Disney said its parks unit, which includes Disney World in Florida and Disneyland in California, had been affected by a “moderation of consumer demand”, leading to a 3 per cent decline in operating profit.
Hugh Johnston, Disney’s chief financial officer, told the Financial Times the parks business had been squeezed by rising food and labour costs. US consumers have been coping with higher food costs and other expenses, which has caused attendance growth at the parks to level off, Johnston added.
“Consumers who are a little more value conscious [because of] food inflation and the like are managing their budgets more carefully,” he said.
At the same time, Disney theme parks have lost some wealthier American visitors to destinations abroad. “Because the dollar is so strong, the really high-income travellers are travelling a bit more overseas,” Johnston said.
Disney fans also curtailed purchases of stuffed animals, toys and other goods, leading to a drop of 5 per cent in consumer products purchased at its theme parks and retailers compared with the same period a year earlier.
The market was “definitely softening”, Chris Nassetta, chief executive of Hilton, told analysts after the hotel chain released results on Wednesday. US consumers, after spending the money they saved during the Covid-19 pandemic, “have less available, less disposable income and capacity to do anything, including travel”, he said.
On Tuesday, short-term vacation rental platform Airbnb pointed to “signs of slowing demand from US guests” during its peak summer season as it forecast a deceleration in annual sales growth. Airbnb shares closed down 13.4 per cent on Wednesday.
Airlines have in recent weeks said they would cut ticket prices to fill surplus plane seats this summer, and on Wednesday Topgolf Callaway Brands blamed economic “headwinds” as it told investors that it had seen “softer-than-expected traffic” at its golf driving ranges.
US inflation has cooled from a peak above 9 per cent two years ago. But overall price levels have risen by more than 20 per cent in the past five years and are even higher in certain categories, including food, according to government data.
US households earlier this year exhausted excess savings they accumulated during the pandemic, according to the Federal Reserve Bank of San Francisco. The labour market remains strong, but job growth weakened and the unemployment rate ticked up last month, the government reported last week.
Figures released on Wednesday by the Federal Reserve showed consumer borrowing rose by $8.93bn in June, below expectations of $10bn.
The slowing in consumer credit was consistent with “the gradual slowing we are seeing on consumer spending”, said Torsten Slok, chief economist at Apollo: “Since June a lot of things have happened, including in the past week, but at this point consumer spending growth seems to be slowing but not crashing.”
Nassetta’s remarks at Hilton’s earnings echoed those of Marriott chief financial officer Leeny Oberg last week.
In the US and elsewhere, “the consumer, in general, is perhaps being a bit more judicious about the fancy dinner or going on that extra trip when they’re on a vacation”, she said. “There is at the margin a hair more caution from the US customer.”
