Consumer is meaningfully adjusting spend amid higher energy prices: Zeta Global's Steinberg

Key Concepts

• Zeta Economic Index: A proprietary metric used by Zeta Global to track real-time consumer spending behavior.
• Discretionary Spending: Non-essential expenditures such as travel, entertainment, and dining out.
• Spending Pivot: The act of reallocating funds from discretionary categories to essential costs (like gasoline) rather than reducing total consumption.
• Credit Applications: A leading indicator of consumer confidence and future spending intent.
• Store Brand Substitution: A consumer behavior shift toward lower-cost, private-label goods to mitigate inflation.

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1. Current State of the American Consumer

David Steinberg, CEO of Zeta Global, reports that the American consumer is currently undergoing a "meaningful adjustment" in spending habits due to rising gasoline prices, which have increased by approximately 50%.

• Zeta Economic Index: For the first time in over a year, the index experienced a month-over-month decline.
• Spending Pivot: Consumers are not yet cutting total spending, but they are significantly reallocating their budgets. A disproportionate percentage of income that was previously allocated to discretionary categories is now being diverted to fuel costs.
• Sector Impact: Travel, entertainment, and dining out are seeing the most significant softening as these activities are highly dependent on energy/fuel costs.

2. Leading Indicators and Risks

Steinberg highlighted specific data points that suggest growing consumer caution:

• Credit Applications: These have dropped by 18% month-over-month. Steinberg identifies this as a critical metric to monitor, as it suggests consumers are becoming more risk-averse and cautious about taking on new debt.
• Grocery Trends: An unexpected decline in grocery purchases was noted. Steinberg suggests this does not necessarily mean consumers are eating less, but rather that they are "trading down"—switching from premium name brands to lower-cost store brands to manage their budgets.

3. The "Retail Sales" Paradox

The discussion addressed a common misconception regarding retail sales data:

• Inflationary Distortion: Higher gas prices can artificially inflate retail sales figures. Because consumers are forced to spend more (e.g., $80 instead of $60 to fill a tank), the total dollar amount spent in the economy may appear stable or rising, even though the consumer is actually experiencing a net decline in purchasing power for other goods.

4. Enterprise vs. Consumer Outlook

Despite the softening in consumer discretionary spending, the corporate sector remains resilient:

• Enterprise Spending: Zeta Global reports that enterprise clients have not yet reduced their spending. In fact, there is an observed "acceleration" in business-to-business activity, which acts as an offset to the cooling consumer sentiment.
• Future Outlook: The sustainability of current spending levels depends heavily on the duration of high energy prices. If gas prices remain elevated or increase further, the current "pivot" in spending could transition into a broader, more permanent reduction in overall consumer consumption.

5. Synthesis and Conclusion

The American consumer is currently in a state of transition. While they are not yet "hanging it up" (ceasing to spend), they are actively pivoting away from discretionary sectors to cover the rising costs of essential energy. The 18% drop in credit applications serves as a warning sign of potential future contraction. The primary takeaway is that while the economy is currently supported by enterprise-level spending, the consumer is increasingly sensitive to inflationary pressures, and any further escalation in energy costs could trigger a more significant downturn in discretionary markets.