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Amid recession fears, government shutdowns, and tariff uncertainty, consumers are increasingly diversifying their spending.
While wealthy Americans are gaining purchasing power, lower-income Americans are beginning to retreat, commonly referred to as the “K-shaped” economy. Friday’s Consumer Price Index report could shed further light on the pressures facing widespread parts of the country.
The CPI report, which measures price changes for various goods and services, was originally scheduled to be released nine days early but was delayed due to the government shutdown. The report will not include data related to the government shutdown, but will provide information on the state of inflation ahead of the Nov. 1 deadline for the Social Security Administration to calculate annual cost-of-living adjustments.
Low- and middle-income consumers are being hit hardest by rising prices for essential goods like food and gasoline. Meanwhile, wealthy investors are benefiting from rising stock markets and rising home prices. recent data JP Morgan’s The Cost of Living Survey found that income brackets are a major factor in Americans’ differing views on the state of the economy.
This is where bifurcation is starting to take hold.
food and drink
coca cola, The company, often seen as a bellwether for consumer financial health, is seeing a disconnect across its business.
Higher-priced products that appeal to higher-income consumers, such as Topo Chico’s sparkling water and Fairlife’s protein shakes, are driving the company’s sales growth, CEO James Quincey said on CNBC’s “Squawk on the Street” on Tuesday.
At the same time, Coke is in high demand both at dollar stores, which cater to low-income consumers looking for bargains, and at high-end establishments, such as fast-casual restaurants and amusement parks, which cater to the wealthy.
mcdonalds CEO Chris Kempczinski told CNBC’s “Squawk Box” in early September that the burger chain’s expansion of its value menu was in response to a fragmented consumer landscape, or what he called a “two-tier economy.”
Kempczinski said the company is doing well with high-income consumers, but low- and middle-income customers are “a different story.”
“Lower-income consumer traffic is down double digits, and that’s because people are either choosing to skip meals or just eating at home,” he said last month.
Similar dynamics play out in: chipotle peppersaid Chief Financial Officer Adam Reimer.
“Obviously it’s lower-income consumers who are feeling the pressure right now, and we need to take that into account when we look at future prices,” Reimer told Reuters in July.
Car and airfare
Last month, the average price of a new car exceeded $50,000 for the first time in history, according to Cox Automotive’s Kelley Blue Book.
The record pricing for auto loans, especially those with FICO scores below 620, comes as auto loan defaults and foreclosures are on the rise.
“Today’s auto market is driven by wealthy households with access to capital and favorable loan rates, supporting the luxury end of the market,” Erin Keating, executive analyst at Cox Automotive, said in a statement last week.
Airlines have been experimenting with premium products for years, but sales of big-ticket tickets have gained momentum in recent months.
delta airlines said earlier this month that revenue from premium products is on track to outpace coach cabins next year, and CEO Ed Bastian said there was no sign of the wider, more expensive seats slowing down.
hospitality
Still, while there are signs of a “K-shaped” economy, some argue that it is not here to stay.
hilton Chief Executive Officer Christopher Nassetta told CNBC last month that a tipping point was in sight, but he doesn’t expect this pattern to continue for much longer, in part because inflation and interest rates are falling.
“My own view is that as we look to the fourth quarter and especially next year, we’re going to see a very significant shift in these dynamics. So I don’t think this juncture is going to continue going forward,” Nassetta said. “That doesn’t mean I think the high end is going to get worse or worse. I just think the mid-end and low-end will go up.”
On Wednesday, the hotel chain reported a decline in revenue for its affordable brands, including Hampton by Hilton and Homewood Suites by Hilton.
Meanwhile, Nassetta told investors on an earnings call that revenue from luxury goods has been very strong and remains a focus for Hilton.
—CNBC’s Amelia Lucas, Michael Weiland, Alex Harring, Luke Fountain and Leslie Josephs contributed to this report.
