If you’ve
been calmly or uncalmly ignoring the economic alarm bells that now ring on what
seems like a daily basis, this might be a good time for you to sit up and take
notice.
If you
thought the president’s warning that “there will be short-term pain” wasn’t
meant for you, Walmart’s announcement that, due to the tariffs, they will be
forced to raise their prices should serve as a much-needed reality check – even
if you’ve never set foot in a Walmart.
Walmart’s
claim to fame is price stability. The world’s largest retailer famously leans
on its suppliers to accommodate its promise of “Everyday Low Prices” – a phrase
that will soon take on a different meaning.
The
president is now leaning on Walmart to eat those price increases. (Do you
remember free-market, pro-business conservatism?) So far Walmart has shown no
interest in complying with his demand.
So, how high
will Walmart’s low prices go if they don’t cave to the president? How could Walmart possibly know in today’s
climate of certain uncertainty caused by on-again, off-again, up-again,
down-again tariffs?
How will their customers respond to higher prices than they are used to − higher prices than many of them can afford?
We will soon
find out. Think of it as an accidental experiment.
Whether they
like it or not, the world’s largest retailer, with over 100 million weekly
shoppers across the U.S. is now a giant economic laboratory with 100 million
budget-conscious lab rats and a lot of economy-watchers peering through their
windows.
For
consumers, small business owners, and municipal governments (you know, like the
one that governs the still somewhat townish city of Watertown), Walmart’s price
hikes and how its customers respond might be exactly the kind of economic
indicator that makes more and more people ask:
How much
pain will there be?
And how
long will it last?
Speaking of
economic indicators…
Those of you
who rely mostly on the stock market to predict the near-term economy may have
reached the point when you’re ready to tune out the noisy rollercoaster and
tune in to more reliable predictors.
And, since I
have only the vaguest notion of what they would be, I asked ChatGBT to give me
a list of all the economic indicators that experts use to take the temperature
of the U.S. economy.
I expected my
AI friend to give me 12 to 15, which would be a reasonable number for me to
list in this blog post. Unfortunately, my AI friend handed me an unwieldy list
of 90 (Walmart not included). You can see the list here.
What exactly
was I supposed to do with 90 economic indicators? Sure, they would make me
better prepared to follow the short or long-term wreckage resulting from the chaotic
tariff uncertainties and might make me the center of attention at a future
cocktail party, if I could figure out how to make sense of the mountain of
information.
I thought
about dropping the 90 indicators into a spreadsheet, so I could monitor each of
them weekly monthly, or quarterly, depending on their update schedules.
I thought
about it. But not for long.
Like many of
you, I simply want to know:
Are we on
the road to recession?
Or
stagflation?
Or will we
soon discover that we are already there?
Or does it
even matter what the experts call it if we can feel it?
My somewhat
reliable gut instinct tells me that for millions of Americans and thousands of
Watertown residents, it’s all about the “Can’t Factor.”
The trip they
can’t take, the car they can’t buy, the business they can’t start or maintain,
the house they can’t buy, the apartment they can’t rent, the night out they can
no longer afford, and the small indulgences that made life a little easier or
more pleasant that they can’t continue to enjoy.
I wondered: Could
there be a simple economic indicator that the average person, like me, can
examine and follow that will give us a reading on the economic pain that many
people are already experiencing? One that we don’t need a degree in economics
to understand.
Something
like the Walmart factor.
While the
nearest Walmarts are about 10 miles away, it turns out that there’s another economic
laboratory within walking distance from my house, where we can peer through the
windows and observe the part of the economy.
It’s located
at 197 California Street. Chances are you’ve been there.
It’s called
McDonalds.
This May 1, 2025 headline did not get nearly the attention it deserved:
IN THE
FIRST QUARTER OF 2025, MCDONALD'S REPORTED A 3.6% DECLINE IN U.S. SALES—THE
STEEPEST DROP SINCE 2020
This
headline speaks volumes. And so do the details that go with it.
CEO Chris
Kempczinski attributed this downturn to broader economic uncertainty (there’s
that word again) and inflation (there’s that other word again), noting that even middle-income Americans are
feeling the squeeze.
CFO Ian
Borden highlighted that middle-income traffic dropped nearly double digits
year-over-year, indicating that economic pressures are expanding beyond low-income households.
How does
McDonald’s define low-income and middle-income?
McDonald’s
doesn’t publicly publish those definitions, but based on marketing research
practices and industry standards, their definitions typically align with
national income brackets. Here's a general breakdown based on U.S. Census
Bureau and Pew Research Center benchmarks:
Income Tier Annual Household Income
Low Income Less than $50,000
Middle
Income $50,000 to $149,999
High Income $150,000 and above
As an
amateur economy watcher, It would be valuable to know if a growing number of
customers with a household income of $100,000 to $150,000 have cut back on
their Big Macs and fries due to the economy.
The headline
also serves as an important reminder that the COVID-19 Recession was only five years
ago and that we have absolutely no idea how many Americans nationally and locally,
who lost their jobs, careers, businesses, and maybe their health, are still
treading water.
For individuals, already struggling to stay afloat, an economy that delivers even short-term pain is about as tolerable as a sudden riptide.
In the category of small indulgences that make life a little easier or a little more pleasant, being able to spontaneously pull into a McDonald’s drive-thru, without worrying about the cost of the meal might be high on the list of a lot of local lab rats.
But today, low
and medium-income customers have to contend with the ever-rising costs of water
and sewer rates, energy bills, property taxes, rent, insurance, food, clothing,
and other necessities, all adding up to a skyrocketing cost of living, turning those
small indulgences into unjustifiable luxuries.
In 2015, the
average cost of a Big Mac Meal (which includes a medium-sized drink and medium
fries) in the Watertown area was $5.99. In 2020, the price remained unchanged. By
2025 the average price of a Big Mac Meal reached $12.09.
McDonald's knew
that to win back their customers, they would need a rescue plan, designed for a
tough economy that will likely get a lot tougher before it gets better.
They knew It
would have to be value-driven. The plan is now in place. And so is the
experiment. Whether it succeeds or fails will tell us a lot about where we are
headed.
I will of
course be checking their updates. In the meantime, whenever I find myself
driving down California Street, usually around lunchtime, I make it a point to pull
into the McDonald’s parking lot and count the number of cars in line at the
drive-thru and the cars in parking spaces.
It’s obvious
to me that business, compared to even a few months ago, is way off. (Try it
yourself. We can compare notes)
Like the McDonald’s
mucky mucks told us: People are feeling the squeeze. Locally, this
is an election year. If I were a candidate for City Council, I would take that
line and run with it.
And run with
it. And run with it. And run with it.
Bruce
Coltin, The Battle For Watertown