Grocery Stores Just Issued a Warning About the American Consumer

0:00Americans don't just overwhelmingly disagree with this idea of a resilient economy, they vehemently disagree, as we'll see. And Kruger may have just delivered one of the clearest warning signs yet. The grocery giant is lowering its sales forecast, pointing to consumers who keep pulling back. The thing is, like gasoline, groceries aren't luxury purchases. When households begin cutting back at the supermarket trading down, buying fewer items, or hunting harder for discounts, it tells us financial pressures reaching the most basic parts of daily life. And that pressure directly challenges the mainstream claim that the economy remains resilient, resilient for whom. Because the vast majority of Americans just don't see the economy being described to them by the economists, Washington, or the financial media. They are paying more at checkout. They are getting less for every dollar spent on gasoline. They know their income is under a persistent threat that no one in the mainstream takes seriously. Now they are responding the only way they can by pulling back more and more at the margins. Behind the pullback, confidence, expectations, and perceptions of personal finances are painting a picture far

1:04removed from the celebratory headlines about soft landings and record stock prices. Of course, these numbers are shocking only if you still believe the Federal Reserve has anything useful to offer. The media is accurately representing how ordinary people live, or Wall Street stock market is somehow a reliable measure of mainstream prosperity. The American people have spoken. It's not not even close. Steve, we got grocery stores yet again. We've heard from other retailers like Walmart, they're cutting prices. Kroger has been trying to cut prices too, but that's what they're saying. We have to cut prices just to get people coming in the stores. And even then when we do cut prices and do our best to cut prices, it doesn't necessarily work. The customers aren't coming in the way that they used to. Yeah, absolutely, Jeffy. I mean, consumer is not maybe just a month or so ago thought, hey, there's finally some relief to all this inflation. Maybe things are going to start turning around that all of a sudden huge spike in energy. Everybody knows gasoline prices and diesel prices are likely to go higher. Even if they don't, they're going to stay elevated, just looking

2:06at crack spreads alone. It's telling you there's such a large shortage, particularly diesel fuel all around the world that any relief of the pump, it's not going to happen probably this year. So for consumers on top of that, what are we also hearing? This food prices are on the rise. You know, you go out to eat and the costs are just like almost astronomical of what some places are charging, but I get it, they really don't have much of a choice. Their input costs are going up. Their labor costs are high, they've got a charge. And so consumers didn't say, you know what? I'm just going to go to the grocery store and they get there and they say, wait a minute, what's going on here? And now, the sudden, what we're seeing is sentiment is reflecting that the problem is we haven't seen spending come crashing down to where sentiment is. That's right. I mean, what you're saying basically is something has to give, right? At some point, something has to give. And that's what all these CEOs and all these companies are really warning about. They're saying, look, we keep seeing this behavior, we keep seeing difficulties. You know, customers come in less frequently when they do come in, they spend a little bit less or in the case of some retailers and say customers come in more,

3:11you know, they get more, they do more shopping when they're coming in, but they come in less frequently. So, they're people are, you know, gathering their trips together and doing them one time instead of three times during the week. Either way, consumer behavior has shifted to the point that all of these big companies, especially anybody related to, you know, essentials like food and fuel, they keep saying that, you know, consumers are spending on gasoline, they're spending on food, and they're cutting back in other places, which makes it increasingly difficult. That's one of the things that Kroger was talking about at the margins. The margins are not seeing the high volume or high high high value items go off the shelves like they usually, you know, the impulse buys and things like that. You know, they're good for retailers who have thin margins to begin with. The behavior a lot at the margins is shifting and as Steve is you're pointing out, it's, it's like, they're, they keep trying to, they keep trying to avoid having to admit something has to give, something has to give, we got to get this done with because something has to give and what they're really saying is, is consumers pull back slowly, they're afraid that pulling back slowly becomes pulling back more frequently and pulling back more harshly. Before we go on with our video today,

4:15let me ask you a question. What if your gold could actually pay you every single month in more gold? That's what today's video sponsor monetary metals let you do. And here's how it works. You still own the gold. It's still in your name. It's fully insured. But instead of just sitting there doing nothing, it actually starts working for you. Monetary metals has built a system that turns idle gold into productive gold, earning real yield, paid in physical gold, not dollars, no selling, no trading, no converting. You keep your gold and every month, you get more of it. It's a simple idea, but it solves a big problem. If gold is money, it should act like money and now it finally can. If you're a long-term gold holder looking for a smarter way to store value, check them out at monetary-metals.com-sneiter. Again, that's monetary-metals.com-sneiter. I highly recommend booking a call with them today to see if they're the right fit for you. We thank monetary metals for their

5:19sponsorship, but no, let's get back to the rest of our video. In Jeff and you think about, we're going into the winter season. A lot of people think, okay, well, diesel fuel, that's a summer thing. No, you get into heat. It's a winter issue, of course. We have a cold winter, and that means expenses for consumers and businesses are going to go up even more, put even more pressure on their wallets. And last week, we talked about average hourly earnings, particularly the production of Nazi Revisory Subset. And the experts and analysts were, oh, look, it's virtually unchanged. It's like, look, that's not good because when costs of food and gasoline and diesel are going up and your wage growth is static, that's exactly how you get squeezed. And that's what we're starting to see in the University of Michigan survey. We've been seeing this for a while. The consumers have been complaining, but they haven't seen their spending change. Now, Kroger is essentially saying is, look, they're starting to change their spending. Jeff, you and I know, once they start that number, that change is only going to accelerate

6:21to the downside because debt service costs and other expenses like insurance and all the other household budget items, they haven't gone down. So the problem is, where do you cut when you can cut no more? Well, you're going to have to take some drastic moves. And then, of course, for companies like Kroger, well, we know the next hammer that's going to drop. Well, the only thing that can save spending, right, Steve, is an actual legitimate genuine pickup and employment, right? If there's suddenly a rush of hiring, like the AI boom actually led to something more than just buying expensive data center equipment, we actually saw a boost of hiring, a real rush of hiring, not talking about the August payroll report, which nobody paid any attention to, but an actual legitimate trend in hiring where wages start to go up again, pays start to go up again, jobs become plentiful instead of being, instead of shrinking in, you know, this economy-wide hiring freeze, finally, falls, and people start to have jobs and opportunities again. That's basically all the way we can, we can get spending to go back up. What consumers themselves, along with other sources, but

7:22consumers themselves going back to the University of Michigan survey, they don't see it. Same as the data, data shows the same thing. There's no, there's nothing that suggests that hiring is picking up anywhere and consumers themselves continuously say, we don't see the labor market turning around. In fact, inside the University of Michigan survey, people don't look at the detail, but the University of Michigan survey tracks the expected change in unemployment during the next year, and it is at levels that are not just associated with every single past recession since the 1970s, it's at levels, it's at the same worst levels at every single past recession in terms of the cycle. So consumers themselves are saying, look, we don't expect the labor market to pick up. In fact, we continue to fear that it's going to crack as much as anything else. You know, everybody's waiting for the consumer to crack. The consumers sitting there saying, wait, sitting there looking at the labor market saying, when is that going to crack? So as far as consumers are concerned, of course, they're changing their behavior at the margins. What looks to economists and central bankers like resilience, our consumers just with their heads

8:24barely above water trying to hang on, worried that they're going to sink even further once their employer starts to get even more pressure at their margins. So consumers are telling us they don't expect anything to change in the labor market. If anything, they expect it to continue to get worse, which means at some point, something has to give. Jeff, it's not just consumers that are struggling to keep their head above water. I mean, it's businesses. We saw this in the PPI report this week that, you know, big jump on the month over a month, no surprise. We know the correlation between energy, you know, diesel fuel, crude oil, but what we're not seeing is consumer prices being able to rise. And this is a key point, I think, from Kroger saying, look, we can't keep raising our prices. We want to. We'd love to. I think every business says we need to, but the problem is input prices are going up, output prices are what they're selling for, not keeping pace. So what we are seeing is businesses being squeezed and they're doing everything they can to absorb these price increases because they know we've hit the wall. We know we can't go anymore. We can try to nudge it a little bit here

9:26and there, but consumers are clearly saying, look, I've had enough. I'm not going to spend. Problem is when that happens, we give the situation where businesses start to want to defend their margin. Of course, if, you know, with that means, and what I think we're going to hear from companies like Kroger and across the board and the coming quarters is we couldn't, we can't drive our prices up, we can't drive ourselves up. And in turn, we're going to have to cut jobs. And it's going to start, you know, if it hasn't already, smaller and medium-sized business. We talked about this last week, you know, everybody talks about the K-shaped economy as far as consumers, which is, you know, it's an accurate description. I hate the term because every economy is K-shaped, but what we really mean is that there's far too many people in the lower end of the economy than really there should be for any sort of legitimately healthy situation. So we have far too many people in the lower section, but that's also true of the corporate side of things. And one reason why there's so many consumers in the lower part of the economy is because small and medium-sized businesses, unlike their larger counterparts, didn't get really a huge boost in profitability

10:27back in 21 and 22 and 23 with all that artificial stimulus that was running around. And they've spent the last couple of years tightening their budgets and tightening down on everything, including one of the reasons we have the hiring freeze and to begin with is because small and medium-sized businesses are like, we can't hire anybody, we don't have the business forum. And our costs continue to go up at the same time, we don't see the same amount of purchasing power in our revenue, we can't raise our prices. So we can't bring in more people, which so the K-shaped economy doesn't just apply to consumers, it also applies to small and medium-sized businesses who have tried their really their best to hang on to as many employees as they possibly can. The running lean operations as it is, that's why they haven't been hiring for years. They're running lean operations. They would prefer not to hire or not to fire anybody that they really probably need. You know, they cut back hours as much as they possibly can without losing their employees. But when we say something has to give, it's not just strictly on the consumer side. And that's what consumers themselves keep keep saying. That's what this University of Michigan

11:27numbers says when we're talking about the expected change on unemployment. They're saying, I hear my boss is talking, I hear my co-workers talking and they're not talking about good things here. They're talking about how we don't have the margins to maintain all of the employees that are in this room. We're going to have to get, we're going to have to start really making some serious considerations. So the consumers are telling us about not just prices and inflation and their own fiscal situation. They're also saying, look, we don't think the situation in labor markets going to improve. In fact, we continue to believe at some point something has to give. You know Jeff, and for good reason, you mentioned small and this size businesses. Also in the PPI report, it was the goods producers that really saw the increase. Of course, we know all energy driven. But when you look at the services side, there was a small increase. But why is that? Because they're saying, hey, we're at the limit. I think this is where employees are really starting to see, yes, they're listening to their bosses, but they're also listening to what their customers are saying. They're probably taking phone calls and, hey, I'd like to order this and how much is it?

12:29Wait, what? Oh, no, never mind. I think I'll put that order on hold. And when you start seeing this in real time, there's a reality as you look around your office, you start to realize, if we're not selling and I'm not doing business, maybe we don't need as many of me's here to sell or service or any of the business that we need. That is what I think we're starting to see in the survey that consumers are hoping. And again, they've been hoping, I think, for years right along with businesses, that something was going to change. I think the reality is this energy shock has been going on too long. The interest interest rates have been stand up too high. That the reality is setting in is that under this current regime, the only outcome is if we're lucky, we get stagnation. That's the best case scenario. But if that doesn't work and consumers cut spending, now, as you just said, from the University of Michigan, consistent with recessions back to 1970 makes perfect sense. Yeah, that's what energy shocks do, right? They don't create inflation outside of the temporary burst where prices go up in the narrow channel. Energy cost go up, gasoline goes up, diesel sky

13:31rockets, and then something has to give and what something has to give is usually the labor market because that's really the only variable that companies can really control. And so it's a consistent picture from Kroger who's saying we sing this around the edges and then consumers who are pulling back, which puts even more pressure on these businesses, right? Because even if the consumer spending hasn't completely halted, which by the way, doesn't really happen, even in the biggest recessions like 2008, you saw maybe a two, three, four percent reduction in sales, which across the entire economy, which is huge, but it's not like sales dropped by 30%. It's not like the early 1930s. So when you're talking about sales at the margins, you're talking about something like even if sales fell like a half a percent, that would be enormous. And it leads to huge pressure. And that's what these companies are basically warnings. That's what consumers are warning everybody about. They're saying, look, this cannot continue. We cannot afford gasoline prices. We cannot afford food to go up. Our paychecks aren't rising. And we're worried we're not going to have a paycheck. So the more it looks

14:34like we're not going to have a paycheck, the more it looks like food prices are going to go up. And the more it looks like gasoline is going nowhere, the more we're going to start behaving prudently. Yes, Americans can behave prudently. Everybody wants to go out and spend, spend, spend. But there is a point at which Americans stop to stop and say, look, we can't as much as we would like to go out and spend it restaurants and bars and everything on the weekend, we are going to have to stay in this weekend. Maybe it's just one weekend a month. Maybe it's two weekends a month, but Americans will start cutting back because when they perceive that that's a very real threat, they realize they have no choice. We have to start conserving funds because the the future, the near term future doesn't become more uncertain. It becomes more certain. And that certainty is just not what everybody wants to hear. Well, in Jeff, as you mentioned, Kroger is already saying that behavior is happening now. There's same people are making fewer visits. Well, when money's flowing and everything's okay, and you go, oh, you know what? We're going to have burgers tonight. We're out of mail or cheese or something. But no worries, honey. I'll just run to the store and get that. And no big deal. The

15:36cost of gas wearing in here doesn't matter. But all of a sudden, when budgets get tight, you think about, hey, that trip to the gas station is a store that might be a few bucks and it starts to add up. And while you're there, you might spend other money. So now everybody's starting to think, hey, I got to go from here here and here and then I come home. And I'm going to only spend what my budget allows that I'm going to because I can't keep spending money there. I'll turn on the TV, you play some video games, who knows, whatever it is they do. But it's that cutting back of just let's go out somewhere. That's what we're seeing. This initial change. And that's where I think these small businesses are really going to start to see some impact here. And that again, as we go into the fall season, the winter season, as energy prices stay up. And I think this is the reality. The consumers, I didn't think they were expecting prices to go back up. And now they're starting to wake up to the reality is not only up, they're not coming down. They do come down. They're not coming down enough. I have to change my spending habits. And just as you said, it doesn't have to be a significant change. You don't have to cut your household budget by 30%. You just make

16:40a few small changes. And next thing, there's a ripple effect all the way through the service of the side of the economy, the restaurants and bars. And that's one of the first leading indicators. Jeff, for me, when I see restaurant traffic drop and I love it, when I go out to eat, if I go to a place that I frequent, I love to talk to the servers or bartenders, managers, whoever I can get an ear of. And I want to find out how is business. And if they go, oh man, it's down and slowing. That's a leading indicator. The second one, it's your barber. Men will let their hair go a lot longer before they cut their hair when things slow down. Other people like to ask. Yeah, that's true. It's, you know, what was the old Alan Green span, the underwear index? You remember the 19? Yeah, no, I'm not joking either. I think you're not. That's the best part. Your next. The underwear index was something they came up with in 1990s. I think it was Alan Green spans fed. What they said was, you know, not just to men not cut their hair when they have to cut back. They also don't change their underwear. I don't buy, buy different underwear when they, when things are tight. So it is absolutely the truth. And the thing is here to be

17:43perfectly clear, it's not just one survey or another. We're not just picking, you know, not just cherry picking crogr here. And it's not just the University of Michigan survey. I did a video earlier this week on the New York Fed survey, which was very interesting and very revealing because first of all, it's data that's collected by the New York Fed, the Federal Reserve, which means this is in the hands of the FOMC. And these guys are going to hike rates next week, regardless of the information they have from consumers, because they ignore the information. They think we're better at economics. We have all these sophisticated mathematical models. What are those idiot Americans know about the economy? Well, it turns out through history, the idiot Americans are far better at small economics than every PhD economist that has ever worked at the Federal Reserve or any place close to it. And so it's not just the University of Michigan, the New York Fed's own survey, the the expectation for unemployment to rise just hit 44.4%, which is the highest in that survey since April of 2020. So do you see it consistently in that sort of the conference board, another survey, the conference boards consumer sentiment survey has been bad for quite some time. The expectations

18:44index, whenever it's below 80, that's a recession signal, although the conference board has started to ignore it, because the NDR refuses to declare a recession, even though all of these consumer indicators look like they're down at recession levels. And we know from the labor market that nobody's hiring, even if nobody's firing, hiring is the bigger part of recessions to begin with. Everybody associates recessions with mass layoffs and what consumers and labor data and a broad survey of anything related to these topics says the economy isn't bad shape to begin with. And going back to the theme of this video, something has to give. You know, and that's the key point Jeff, something has been having to give for a while. And now we're starting to see the first indication that consumers are actually tapped out. They borrowed their way through things. They've done what they can. And now we're really seeing actual changes in spending habits. And that is probably the worst sign for economy. And I think that's exactly what we're seeing in the surveys. People worried about their job because not only are they hearing it on their end when they go to work, they're actually

19:45doing it in their own household spending. Yeah, well, here's the thing. You have two choices here, really two choices. You can either trust the Fed and all its econometric models that have gotten basically everything wrong since they started econometrics back in the 60s and 70s or you can listen to Americans. And while Americans may not know exactly what the, you know, the exact macroeconomic account numbers are, they do have a deep understanding of small economic and Americans have been saying, worried about jobs, worried about our fiscal situation. This continues, it is not going to end well.