Goldman Sachs has issued a stark warning about the deteriorating health of U.S. consumers, noting that spending weakness has spread from low-income groups to the middle class. Multiple corporate executives report consumer confidence at its worst level in decades.
On November 1, Goldman Sachs consumer goods expert Scott Feiler highlighted a shift in market discussions about consumer health. Previously, companies attributed soft spending to company-specific factors or low-income group issues. However, more firms now report broad-based slowdowns, particularly among middle-income earners aged 25-35.
Consumer stocks have faced significant sell-offs over the past two weeks, with the discretionary sector underperforming the broader market by 500 basis points.
Kraft Heinz CEO Carlos Abrams-Rivera stated during an earnings call: "We're now facing one of the worst consumer confidence levels in decades." The company slashed its full-year sales guidance to a 3%-3.5% decline, citing inflationary pressures and reduced food stamp benefits.
Goldman's Delta One head Rich Privorotsky observed stark divergences this earnings season: While Apple's strong holiday outlook highlighted affluent consumers' resilience, restaurant and mid-tier discretionary stocks plummeted, with the Retail ETF XRT retreating to mid-October lows.
**Earnings Reveal Deepening Divide** Multiple middle-market focused companies reported severe setbacks. Chipotle shares plunged 17% as management noted reduced visit frequency among lower-middle income customers facing job insecurity, student loan repayments, and stagnant wage growth. Mediterranean chain CAVA dropped 11%, while home goods retailer SG fell 9.6% and SFM crashed 26%.
Chipotle specifically identified core customers aged 25-34 earning under $100,000 as cutting back, shifting spending to grocery stores rather than competing restaurants. Even traditionally defensive sectors showed cracks, with snack giant Mondelez CEO Dirk Van De Put warning: "A government shutdown won't help consumer confidence."
**Three Alarming Shifts** Feiler identified critical changes in market narratives: 1. More companies now acknowledge broad spending slowdowns 2. Weakness has clearly spread to middle-income consumers, especially 25-35-year-olds 3. Stock performance has deteriorated sharply over two weeks
Auto parts retailer O'Reilly reported moderating DIY transactions since mid-Q3, reflecting short-term consumer pushback against price hikes. While maintenance spending remains strong, big-ticket purchases are being delayed, with Camping World noting continued declines in RV sales due to economic uncertainty.
**Market Punishes Consumer Stocks** The consumer discretionary sector underperformed by 400bps this week (500bps over two weeks), while staples lagged by 500bps (750bps over two weeks). Companies missing estimates faced severe punishment, with even beaters gaining no reward.
Surprising slowdown signals emerged despite low pre-earnings expectations. Comments about 25-35-year-old consumers from PayPal, O'Reilly, and Chipotle, coupled with Royal Caribbean's weaker net yields, exceeded anticipated headwinds.
**High-End Resilience** Some premium-focused businesses maintained strength. Visa reported "broad-based robust spending across retail services, travel, and fuel," with both discretionary and essential spending rising sequentially. Starbucks saw positive transaction growth in September, while Brinker International's Chili's chain reported growth across all income tiers—including households earning under $60,000.