Goldman Sachs has issued a "red alert" on U.S. consumer health, noting that spending weakness has spread from low-income groups to the middle class, with multiple executives describing current confidence levels as the "worst in decades."

On November 1, Goldman Sachs consumer goods expert Scott Feiler reported a shift in market discussions. While companies previously attributed softness to firm-specific factors or low-income struggles, more businesses now report broad-based slowdowns—particularly among middle-income consumers aged 25-35. Over the past two weeks, consumer stocks saw heavy selling, with discretionary sectors underperforming the market by 500 basis points.

Kraft Heinz CEO Carlos Abrams-Rivera stated during earnings calls: "We're seeing one of the worst consumer confidence periods in decades." The company slashed full-year sales guidance to a 3%-3.5% decline, significantly worse than prior expectations, citing inflationary pressures and reduced food stamp benefits.

Goldman's Delta One head Rich Privorotsky highlighted stark divergences this earnings season: While Apple's strong holiday outlook showcased high-end resilience, restaurant and mid-tier discretionary stocks plummeted, with the Retail ETF XRT retreating to mid-October lows.

**Earnings Reveal Deepening Divide** Multiple middle-market companies reported severe impacts. Chipotle shares plunged 17% as management noted "widening gaps" with middle-to-lower income customers reducing visit frequency amid job insecurity, student loan repayments, and stagnant wage growth. Mediterranean chain CAVA dropped 11%, while home goods retailer SG fell 9.6% and SFM crashed 26%.

Chipotle specifically highlighted spending cuts among core 25-34 year-old customers earning under $100,000, who are shifting purchases to supermarkets rather than rival restaurants. Sprinkles Foods also reported Q3-Q4 results far below expectations, confirming middle-income and younger consumer pressures.

Even defensive sectors showed cracks. Snack giant Mondelez CEO Dirk Van De Put warned: "A government shutdown won't help consumer confidence." Hershey implemented pre-Halloween discounts as "Americans tighten spending amid economic uncertainty and cocoa price surges."

**Middle-Class Weakness Spreads** Feiler identified three alarming shifts: 1) More companies reporting broad slowdowns 2) Explicit confirmation of middle-income (especially 25-35 demographic) strain 3) Sharp stock underperformance (-500bps for discretionary over two weeks).

Auto parts retailer O'Reilly noted DIY transaction softness since mid-Q3, reflecting short-term price sensitivity. Camping World reported continued RV sales declines as buyers resist big-ticket purchases amid inflation, while maintenance spending holds steady.

Cheesecake Factory observed: "September saw volatility, but October brought a sharper shift. Historical data from the 2019 shutdown showed 1%-2% monthly industry declines." Monroe's preliminary October comparable sales fell 2% versus 1.1% growth last quarter.

**Consumer Stocks Hammered** Sector performance mirrors fundamentals. Discretionary stocks underperformed by 400bps this week (500bps over two weeks), while staples lagged 500bps (750bps two-week). Markets punished misses severely, with even beats failing to lift shares.

Goldman noted unexpected slowdown signals despite low pre-earnings expectations. Comments on 25-35 year-old consumers from PayPal, O'Reilly, and Chipotle, coupled with Royal Caribbean's net yield miss, exceeded anticipated weakness. Booking Holdings observed slight declines in daily rates and shorter stays, suggesting sustained discretionary caution.

Mondelez's CEO added: "Category growth slowed versus H1—clearly not positive. This reflects broad economic concerns and price hike frustrations."

**Luxury Holds Strong** Some premium-focused or scaled players remained resilient. Visa reported: "U.S. spending showed broad strength across retail services, travel, and fuel. Both discretionary and essential spending rose from Q3, with the highest-spending tier continuing fastest growth."

Starbucks saw positive September traffic, with strong campus sales: "All age groups showed excellent traffic and sales responses." Brinker International's Chili's brand grew across income levels, with sub-$60k households becoming its fastest-growing segment despite broader low-income pullbacks elsewhere in dining.