Kroger and Amazon have a message for America. It’s not a message anyone wants to hear.
Kroger told Wall Street last week that the supermarket giant added more than a million higher-income households as customers, and lost 700,000 lower-income ones.
That’s bad news times two—and I’ll explain why in a moment.
But first: The news from Amazon…
America’s largest company by revenue now has more than 12,300 workers on food stamps and another 11,300 on Medicaid across 11 states studied by the Government Accountability Office. That’s nearly triple the 2020 number.
The bottom line is that both Kroger and Amazon are telling the same story about the American economy… in two different ways. Amazon’s story is the supply side of the US economy; Kroger’s story sits on the demand side.
And both sides say trouble has settled in.
The economy that Wall Street is celebrating these days has been built atop a labor squeeze that requires government transfers (i.e. welfare) to hold the bottom together, and now the bottom is starting to fall out.
I’ve been writing for far too long about the disconnect between what the media and successive White House administrations have been saying about the economy… and what the economy has been saying about itself.
Every new economic release strengthens the proof that all is not well.
People keep talking about the stock market performing well as though that’s proof the economy is smoking hot. I remind them that stock markets in Argentina and Zimbabwe both posted world-beating returns even as those local economies disintegrated amid currency inflation.
That’s the way it goes. When local investors see the value of their savings and their purchasing power eroding, they grasp at stocks as a form of financial salvation. Better to own a real-world corporate asset than a currency losing purchasing power in an economy that is going nowhere fast.
Let’s return to Kroger for a moment…
Adding a million high-end customers sounds pretty darn good—the top of the food chain holding up demand. But think about Kroger as a supermarket destination. It’s not a luxury grocer like, say, Whole Foods or Trader Joes. It’s a middle-tier chain.
So, Kroger didn’t win high-income households by outdoing either of those upscale brands. It did so by being cheaper.
Meaning that while the bottom of the economy is dropping out—those 700,000 low-income households Kroger lost—the top of the income ladder is also quietly starting to fray as consumers with money become more cost-conscious.
That’s the demand side of the economy.
Over on the supply side we have Amazon, where wages are so thin that the federal government has to backstop the grocery bills of the people packing your boxes. That’s indicative of a larger and more troubling trend for America: of every dollar generated in nonfarm business, workers now take home 52.8 cents in wages and benefits—the lowest share since the Bureau of Labor Statistics began tracking the number in 1947.
Yet, since January 2000, the S&P 500 has returned more than 750% with dividends reinvested. Real wages, over that same quarter-century, are up just 12.5%.
In short: The stock market goes up because labor’s share of corporate profits is going down.
Mark Zandi, the Moody’s Analytics chief economist I used to regularly interview when I was writing for The Wall Street Journal, reports that the top 10% of American earners—households making more than $250,000—now account for 49.2% of all consumer spending, the highest share in Moody’s data, which begins in 1989 at roughly 35%.
“This group is driving the economic train with their spending,” Zandi recently warned. “If they pull back, they’ll take the economy with them.”
The optimistic read here is that this is all just cyclical: that labor’s share falls, then the labor markets tighten, and wages catch up.
Maybe.
But the economy is different these days. Part AI future, part 1920s redux.
And the stitch holding all of it together is the spending of the top 10%… who are now taking their business to Kroger.
The message is that something just ain’t right.
Not signed up to Jeff’s Field Notes?
Sign up for FREE by entering your email in the box below and you’ll get his latest insights and analysis delivered direct to your inbox every day (you can unsubscribe at any time). Plus, when you sign up now, you’ll receive a FREE report and bonus video on how to get a second passport. Simply enter your email below to get started.
