Are consumers in great shape or pulling back? That depends which CEO you ask.

CEOs have spent this entire earnings season talking about “the consumer,” the theoretical customer whose behavior they try to predict and model in order to sell their products or services. 

But depending on which company is reporting, executives are painting two drastically different pictures of consumer behavior, split along economic lines. 

The term “consumer,” of course, is a corporate euphemism for people who spend money, which is what fuels the economy. Some companies, like McDonald’s and Pepsi, say consumers are pulling back at an alarming rate. Others like Wingstop and Chipotle say the consumer remains resilient and is driving record sales. 

Walmart, the largest retailer in the country and one that specializes in low prices, reported sales growth on Thursday and said the consumer is "stable." Retail sales data, also released Thursday, rose more than expected.

“It’s been very confusing on consumer health,” said Nikhil Devnani, an analyst at Bernstein AB who covers companies ranging from Doordash to Wayfair. “Some businesses are fine, others are less fine, and it's not easy to marry those things.”

The University of Michigan Consumer Sentiment Index is down 30% since 2019, which has confused Wall Street because many other economic indicators are positive. Inflation has slowed, the economy is growing, the unemployment rate is at moderate levels – why not splurge on a vacation or more frequent trips to Red Lobster? 

As it turns out, many higher-income consumers are. And lower-income consumers aren’t as much. Here’s what a few CEOs have said about that divergence:

Gunther Plosch, CFO of Wendy’s: Within the income cohorts, our research company splits them into below and above $75,000. We see the same trend that we have seen in the last couple of quarters. The lower income consumer is reducing the frequency. The higher income consumer is increasing the frequency. 

Chris Nassetta, CEO of Hilton: The consumer, if you break it apart and sort of segment, in the lower half, the consumer is maybe even the lower three quarters. I mean, you can read, the data is all out there. They had bank accounts and checking accounts full of money coming out of COVID. They've spent all that money. They're now borrowing more. And so, they have less available – less disposable income and capacity to do anything, including travel.

You go up to the upper echelons and people still have pretty fat bank accounts and checking accounts and wherewithal. And so, what the impact of that is some continued normalization on leisure transient.

Dave Gilboa, CEO of Warby Parker: On the discretionary spending side, we're certainly not immune to the challenges that many companies are experiencing. But we do benefit from the fact that in spite of our low prices, we serve mainly high-income consumers with a median household income north of $100,000 who seem to be in better shape than lower-income households. And those customers continue to opt in to some of our higher-priced items resulting in higher average revenue per customer.

The split is puzzling for traders. (These are the same people who convinced themselves the economy was headed for recession and then talked themselves out of it all in about a week.)

Joanne Hsu, director of the University of Michigan’s Consumer Sentiment Survey, said it’s perfectly rational for consumers to still feel unhappy about the economy when many economic indicators are up. Survey respondents understand that inflation has slowed, but that doesn’t take away the fact that prices are much higher than they were in recent memory, and that has impacted their quality of life. 

“Consumers are key observers of the world around them,” Hsu said. “And when I say consumers, I include the traders – at the end of the day we’re all consumers.”

The consumer is still spending, just not at the same levels as they were the past couple years. What contributes to the confusion is that the economy got really weird after the pandemic.

“Post-COVID consumer behavior has been a hard nut to crack,” said Trey Malone, an economist and professor at Purdue University. 

And perhaps no place shapes consumers' view of the economy more than the grocery store. 

Compared with four years ago, grocery prices are up about 20% and restaurant prices are up 27%, according to the Bureau of Labor Statistics. Americans spent 11.2% of their disposable incomes on food in 2023, the highest share since 1991, according to the US Department of Agriculture.

Companies that sell food have raised prices to pass on increasing costs while fattening profits, and for a while that worked out. But as of recently, some have noticed they’ve hit a ceiling on price hikes. 

McDonald’s and many of its fast food peers have rolled out value meals to help bring back consumers who have abandoned their restaurants in recent quarters. The term “value” or “promotions” comes up a lot when food companies talk about consumer behavior. 

On the other hand, chains like Chipotle and Sweetgreen – which are a price tier or two above McDonald’s – have reported positive growth in comparable sales. Doordash and Uber Eats are also reporting growing orders. 

So, how can a consumer balk at the price of a Big Mac combo but be OK with paying for a private taxi for their burrito? 

The answer is that we’re probably talking about different groups of people. Consumer sentiment surveys show that lower-income consumers are particularly gloomy, while higher-income consumers are doing more or less fine. 

Higher-income Americans have reason to be cheery. Their wealth has grown disproportionately since 2020, in part because they are more likely to own stocks, and the market has rallied significantly from COVID-era lows. 

Lower income consumers, however, are less likely to be heavily invested in the stock market. They’re also less likely to own a home, and it has become even harder to enter the housing market these days. 

“The bigger question is, is the strength of higher income households enough to offset the weakness in lower income households and keep the economy pushing through?” Gerald Cohen, an economist at the University of North Carolina at Chapel Hill.