Half Full or Half Empty?

Depends on which bit of the world you are looking at

Summary: You can look at the economy as half full or half empty. According to Coca-Cola, it's half full for high-income consumers and some international markets. But it's half empty for lower-income consumers. We're seeing this sentiment from other companies as well--it's a bifurcated economy. Low-income consumers are still spending, but confidence is low and there are some growing concerns about labor markets. Inflation seems to be lower than the Fed realizes as growth slows.

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Macro

You can look at the economy as half-empty or half-full

"It truly is a moment of the cup half full or the cup half empty, depending on what you want to -- which bit of the world you want to look at...if you're in the lower end of the income spectrum in the U.S., you're under pressure from inflation. You can take one of those -- in baskets where it's looked at the inflation by the basket you buy, depending on which income decile you're in and it's pretty high if you're at the bottom end in the U.S. And you can see that pressure coming through -- saw that pressure coming through in QSR restaurants and a number of areas where footfall or basket size was under pressure and, of course, consequent behaviors looking for affordability." - Coca-Cola (KO 0.00%↑) CEO James Quincey

Upper-income consumers are fine 

"We’re seeing pretty consistent behavior with the upper-income consumers - they’re continuing to buy as they normally have." - Casey's General Stores (CASY 0.00%↑) CEO Darren Rebelez

But it's a bifurcated economy 

"I think what we believe that we're seeing is a little bit of impact on almost like a bifurcated economy. I think most people in this room feel pretty good about the economy, feel pretty good about what's going on, but I think that...if you're out there more in a working class at the lower end of the economy, you're having to make choices every day about how to meet your mortgage, how to pay higher insurance costs, how to keep food on the table in a much higher cost environment. And we're also seeing a lot of the cash infusions that came out through COVID and through stimulus packages, I think those dollars are being drained out of people's accounts. And so, they're having to make tougher choices...I think that we're still headed for a soft landing, but the lower end of the economy is getting squeezed, and frankly, the Fed action to slow down the economy, that's who's going to feel that pressure." - Phillips 66 (PSX 0.00%↑) CEO Mark Lashier

"...if you're in the lower end of the income spectrum in the U.S., you're under pressure from inflation...And you can see that pressure coming through -- saw that pressure coming through in QSR restaurants and a number of areas where footfall or basket size was under pressure and, of course, consequent behaviors looking for affordability." - Coca-Cola (KO 0.00%↑) CEO James Quincey

Consumer confidence is hurting 

"The macro environment is dynamic and consumer confidence is clearly under pressure. Inflation is a real issue out there. There's a focus on value, prioritizing essentials. The good news is that people are viewing beauty as an essential that they can't live without." - Ulta Beauty (ULTA 0.00%↑) COO Kecia Steelman

Low-income consumers are starting to worry about the job market 

"...at the consumer below the median household income, which is about $75,000. Consumers are generally concerned about inflation, and they're becoming more concerned about the job market. And what we're seeing are some behavior shifts that we had already started to see." - Darden Restaurants (DRI 0.00%↑) CEO Rick Cardenas

Temp hiring is slowing 

"The temp penetration rate, it's been falling for 27 months and counting. Generally, when you see a fall in temp employment, it generally means that it's going to have an impact on the labor market. And you just look back historically, and those lag times have definitely become longer. Assuming there is not some major event, I'm not so sure that this is going to turn upside down." - Korn Ferry (KFY 0.00%↑) CEO Gary Burnison

But they're still spending. YOLO? 

"The lower-end consumer, which is only about a quarter of our guest base, they’re still continuing to buy, they’re just moving around the store a little bit. A simple example is our fountain soft drink business has been really strong this last year, and that’s especially so among our lower-income consumers. That on a price per ounce basis is a lot more affordable than buying the bottle and can version inside the store, so they’re still purchasing, they’re just making different decisions and those flow back and forth between categories." - Casey's General Stores (CASY 0.00%↑) CEO Darren Rebelez

"...at the same time, our guests aren't managing their check like we've seen in prior quarters. And so, you know, we continue to tell you what this means for our brands." - Darden Restaurants (DRI 0.00%↑) CEO Rick Cardenas

"Within our most budget-conscious households, we are starting to see positive momentum and we grew households in this segment after experiencing declines last year." - The Kroger Co. (KR 0.00%↑) CEO Rodney McMullen

Inflation is much lower 

"Overall, what we expect inflation to be similar to where we did last year and it is starting to stabilize. We don't see deflation broad-based at all, but it is stabilizing around that little over 1%." - The Kroger Co. (KR 0.00%↑) CEO Rodney McMullen

"The first one is that they're seeing retail prices peak in North America. Consumers can only handle so much inflation and ultimately, their buying patterns have to change, and we're starting to see that. Our customers in North America and Western Europe, in particular, over the last 2 years, really leaned into price and expanded margins for their growth. And over the last few months, we've seen that transition, and they're starting to use the volume lever a little bit more. That means promotion" - Ball (BALL 0.00%↑) Senior Research Analyst at Longbow Research Alton Stump

Growth is much slower too 

"I don't want to get into the exact details on the brands, but at a blended level, we're thinking 1% to 2% same-restaurant sales growth for the full year. And as I said, gradual improvement through the year on the underlying trends." - Darden Restaurants (DRI 0.00%↑) CFO Raj Vennam

Labor inflation is among the highest components 

"Pretty much all other categories are probably going to be in that low-single-digit inflation. And so that's how we're getting to commodities being around 2%. From a labor perspective, we are actually expecting labor to be more like a 4% overall." - Darden Restaurants (DRI 0.00%↑) CFO Raj Vennam

Some at The Fed still don't expect inflation to come down for another year or two 

"We're going to get back down to 2%. The question is: how long is it going to take to get there? The second half of last year, if you just looked at the second half data, showed rapid disinflation progress. If you just looked at the second half of last year, we were basically home; we were basically home. The second half of last year was very close to a 2% inflation rate, but then we saw a tick back up in the first quarter of this year. So now we're running at something just a little bit below a 3% inflation rate. It'll probably take a year or two to get all the way back down to our 2% target..getting all the way back to 2% is going to take a little more time, but I'm confident that we're going to get there" - Minneapolis Fed President Neel Kashkari

International