Stay informed with free updates
Simply sign up to the US economy myFT Digest — delivered directly to your inbox.
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 the three companies in 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, triggering intense volatility in stock markets 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 Disney’s theme 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 is “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.
Hilton said its revenue per available room for the latest quarter grew at only 2.9 per cent year on year in the US, sharply lower than the 5.6 per cent growth seen in the same period last year.
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 were down nearly 15 per cent in late trading on Wall Street.
Airlines have in recent weeks said they would cut ticket prices to fill surplus plane seats this summer.
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.
The spending slowdown has already manifested in earnings reports from companies such as McDonald’s, which last week reported its first decline in comparable sales since 2020, and Starbucks, which also revealed a drop in sales.
Results from restaurant operators this week have been more mixed. Yum Brands reported a 5 per cent decline in US same-store sales at its KFC chain during the second quarter, but said its Taco Bell US franchise achieved a 5 per cent rise.
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.”
Hilton and Marriott both lowered their forecasts for 2024 global room revenue growth.
Read the full article here
