America's economy is sending warning signals about consumer spending. Although consumers have supported the economy since the Covid-19 pandemic, and contributed to stronger-than-expected GDP growth in the second quarter of this year, the current earnings season reveals a significantly deteriorating outlook.

This trend is clearly highlighted by McDonald's, which recently reported its first revenue decline since 2020. Global same-store sales fell by 1% year-over-year, with both international and domestic markets showing weakness – while Wall Street had anticipated a flat performance in the US. CEO Chris Kempczinski noted that low-income households had already started reducing their restaurant visits in 2023 and are now even more hesitant. „The sentiment in most of our major markets remains subdued“, said the CEO.

The Chicago-based company supported its underperforming stock this year by sticking to its forecasts for new store openings, investment spending, and operating margins. Some of its fast-food competitors were less convincing to investors: While both Chipotle Mexican Grill and Domino's Pizza reported rising revenues, their stock prices fell after gloomy forecasts for the rest of the year.

To attract customers, fast-food chains are offering widespread discounts. Since late June, McDonald’s has been promoting a meal deal consisting of a burger, chicken nuggets, fries, and a soft drink for 5 dollars in the US. But Morgan Stanley analysts question whether this strategy will improve value creation in the medium term.

The generally high price levels are limiting consumers' willingness to spend on dining out, especially as the savings accumulated during the pandemic have significantly shrunk. Erik Norland, chief economist at the world’s largest futures exchange CME, warned in May that high rental costs could continue to drive core inflation longer than expected, posing a substantial burden for consumers.

Consumer confidence has recently deteriorated significantly. The University of Michigan index fell to 66.4 points in July, its lowest level since November. Researchers cited high price levels as a factor impacting the mood of low-income consumers, a key customer group for fast-food chains like McDonald’s.

But it’s not just dining out that’s weakening. Jim Peters, CFO of appliance manufacturer Whirlpool, said recently that consumers are weary.

Procter & Gamble’s stock came under pressure recently, following its latest earnings report. Although profit for the fourth quarter ending in June fell less than feared, revenue growth still lagged behind Wall Street expectations, despite price increases for many of the company's brands. Large retailers like Walmart and Target are already responding to consumers’ reluctance to absorb higher prices by offering more discounts.

Economists argue that the emerging consumer weakness could facilitate the Federal Reserve’s path toward its 2% inflation target. The markets currently anticipates a possible US interest rate cut in September. Analysts predict that stocks of companies which are heavily dependent on consumer spending are likely to face a challenging period ahead.