Travel and leisure companies are affected by the slowdown in US consumer spending

As concerns about the economy grow, US consumers are cutting back on their travel and leisure spending, affecting businesses such as Disney theme parks and Hilton Hotels.

The warnings in this week’s earnings reports of several companies are the latest proof that American families are tightening their belts as savings from the pandemic era have evaporated after years of constant inflation.

Investors were left with doubts after a weak jobs report on Friday. They questioned whether the US economy could achieve the “soft landing” that the markets expected. This led to volatile trading in the stock market and put pressure on the Federal Reserve, which was then forced to lower interest rates more quickly than planned.

Corporate earnings season has shown that consumers are under pressure. Their spending accounts for two-thirds the US economy. McDonald’s, Procter & Gamble and other consumer goods companies have all reported declining sales.

Disney announced on Wednesday that its parks unit – which includes Disney World and Disneyland in California – had suffered from a “moderation in consumer demand”, resulting in a 3 percent decline in operating profits.

Hugh Johnston is Disney’s Chief Financial Officer. He said that the parks business was being squeezed due to rising food and labor costs. Johnston said that US consumers are coping with rising food prices and other expenses. This has led to a levelling off of attendance growth in the parks.

He said that consumers who are more price-conscious [because of] inflation in food prices and other factors are more careful with their budgets.

Disney theme parks are losing some wealthy American visitors who have moved to other destinations. Johnston explained that because the dollar was so strong, high-income travelers were travelling more abroad.

Disney fans reduced their purchases of toys, stuffed animals and other products, resulting in a 5 percent drop in the number of consumer goods purchased by its theme parks and retail outlets compared to the same period last year.

Chris Nassetta told analysts that the market had “definitely softerened” after Hilton released its results on Wednesday. After spending their money saved from the Covid-19 pandemic the US consumer “has less available, disposable income, and less capacity to do anything including Travel”, said Nassetta.

Airbnb, a short-term vacation rental company, forecasted a slowdown of annual sales growth on Tuesday. Airbnb shares fell 13.4 percent on Wednesday.

Airlines have in recent weeks said they would cut ticket prices to fill surplus plane seats this summer, and on Wednesday Topgolf Callaway Brands blamed economic “headwinds” as it told investors that it had seen “softer-than-expected traffic” at its golf driving ranges.

The US inflation rate has dropped from its peak of over 9 percent two years ago. According to government statistics, prices have increased by over 20 percent in the last five years.

Federal Reserve Bank of San Francisco reports that US households have spent down excess savings that they had accumulated due to the pandemic. Last week, the government announced that the labour market is still strong but that job growth has slowed and unemployment rates have increased.

The Federal Reserve released figures on Wednesday showing that consumer borrowing increased by $8.93bn, which was below the $10bn expected.

Torsten Slok is the chief economist of Apollo. “Since last week, a lot has happened. But at this point, consumer spending growth appears to be slowing, but not crashing.”

Nassetta’s comments at Hilton’s earnings echo those made by Marriott’s chief financial officer Leeny Oberg a week ago.

She said that in the US, as well as other countries, “consumers are perhaps more cautious about going out to a fancy restaurant or taking an extra trip while on vacation”. The US consumer is a little more cautious.