The Hamburger and Beer Economy

What does it mean about the economy when people cannot afford hamburgers and beer? It is another sign that consumer spending is in trouble. A beer can cost as little as $1, and the same holds true for a hamburger.

McDonald’s (NYSE: MCD) disappointed the market with its earnings. Net income for the chain fell 4% to $1.374 billion. And, in the quarters ahead, modest sales, high food costs and currency values will harm prospects. Results in the European Union were particularly weak. U.S. results were not much better.

Back in late April, InBev Anheuser Busch (NYSE: BUD) posted numbers that were not much more thrilling than the ones from McDonald’s. Analysts were disappointed and the shares fell off. The company remarked that second-quarter numbers would be “softer.” Bernstein downgraded the stock.

Beer and hamburgers represent only a small part of the consumer’s retreat from relatively inexpensive products. The consumer has begun to count pennies, not just dollars. The trend showed up in the earnings of Procter & Gamble (NYSE: PG), which sells products that are relatively cheap by most standards.

If there is a trend in second-quarter earnings, it is more than that large U.S. companies have suffered from a European downturn in business. Consumer products firms have shown that it is not just General Motors (NYSE: GM) cars and PC sales that have faltered. The lowest priced products consumers buy have had sales erosion as well. The consumer is concerned about the cost of the soap and food he buys.

Douglas A. McIntyre