Thursday, May 22, 2025

THE LAB RATS ARE US

 

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 


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