Americans are scaling back on their spending, particularly on airline tickets, hotel stays, and dining out. This shift comes after a period of “revenge spending” during the Covid-19 pandemic, where people splurged on recreational expenses and vacations they were deprived of during lockdowns. However, data from the US Labor Department shows that the annual inflation rate has slowed to 4 percent, the lowest in over two years. Notably, the cost of airline fares dropped by a significant 13.4 percent in the last year.
Despite the decrease in prices, there are indications that Americans are reducing their consumption of various services. Even McDonald’s executives have observed a trend of customers forgoing fries with their meals as a cost-saving measure. This moderation in spending could be a positive development for the Federal Reserve, which is expected to maintain steady interest rates in an attempt to control inflation. Economists hope that slowing demand will help alleviate inflationary pressures without causing a recession.
Notably, service providers in the US are also reporting decreased demand. OpenTable, a restaurant reservation company, has witnessed a 4 percent decline in the number of people dining out in the year leading up to June 12. McDonald’s CEO Chris Kempczinski confirmed that customers are tightening their budgets, resulting in fewer add-ons to their orders. The US Travel Association also reports a drop in demand for hotel rooms compared to 2019 levels. Air travel has similarly seen a decline in bookings, both domestically and internationally.
This moderation in spending extends beyond travel and dining. Bank of America data shows that Baby Boomers have increased their spending by 2.2 percent in the year leading up to May, while Gen X, Gen Z, and millennials have reduced their spending by approximately 1.5 percent. Some Americans have savings leftover from the pandemic, and wealthier individuals continue to spend despite rising prices.
It is worth noting that last summer, there was a surge in demand for hotels and domestic air travel, leading to higher prices. Earlier this year, flight prices to Europe for US travelers averaged $1,167 per ticket, as reported by travel booking app Hopper. However, there are now indications that shoppers are adjusting their habits in anticipation of a recession. Costco executives have observed customers favoring cheaper meats like chicken and pork, and reducing their purchases of more expensive items such as beef, fridges, and televisions. These behaviors align with previous economic downturns.
Overall, the current shift in consumer spending indicates a cooling down of the economy. Lower borrowing rates have not had a substantial impact on spending until recently. While some Americans continue to spend, the general trend reflects a slowdown in demand across various sectors.
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