Iran war, $4 gas, took all the fun right out of U.S. consumer economy

Robert Evans doesn’t need to watch the news to learn about the economic shocks that could give the American consumer pause. He just needs to look at his bike racing records.

“When something major is announced, like tariffs or an attack on another country, our event records are tracked like the stock market. People step back for a minute, pause, and take a wait-and-see attitude,” said Evans, CEO of Cycling Quests, which organizes high-level road races.

He says that now a wait-and-see attitude has emerged.

“Sometimes it picks up quickly, other times it stays flat at 20-30%. We’ve noticed this happens more with our events that have a lower entry price point and are targeting the more downstream market,” Evans said, noting that events with higher price points seem to be a little more isolated. “But we’re starting to see a decline there as well,” he said.

The more an event is linked to travel and sports tourism, the more increases in flight tickets and travel costs reduce demand. Each “fun stop” has a multiplier effect, Evans says. Even at mid-sized sporting events in smaller cities like Boise, Idaho, or Provo, Utah, each out-of-town participant represents approximately $900 to $1,000 in ancillary economic activity (food, lodging, fuel, and incidental expenses) in addition to registration fees. Evans says half of the participants typically stay at least one night, with 60 percent traveling more than two hours to compete.

“The risks to host communities are significant. As consumers begin to skip events or opt for alternatives closer to home, those expenses evaporate while organisers’ fixed costs remain, meaning the economic hit falls harder not just on event organisers, but on local restaurants, hotels and retailers,” Evans said.

The same economic impact applies to truly local events. For example, people who choose not to go to an escape room can skip the dinner they stopped eating beforehand and stay home. This deprives the local restaurant of income and the waiters’ tips.

Escape rooms, bowling, arcade problems

It is certain that the impact of the war on the consumer was not equal. Debit and credit card spending increased by the most in more than three years in March, according to Bank of America; The biggest driver was a 16.5% increase in spending at gas stations, but there was also a 3.6% growth excluding gasoline. Changes in the tax law helped increase the average IRS refund by more than 11% this year.

But overall, Americans are having less “fun” as high gas prices and uncertainty cloud their discretionary spending. Their impact is felt in the dollars spent on escape rooms, bowling alleys and arcades.

“Placer.ai data confirms a recent shift in consumer behavior: Shoppers are reducing their visits to discretionary retailers and entertainment venues, instead prioritizing consumer staples to stretch their household budgets,” says RJ Hottovy, Head of Analytics Research at Placer.ai.

Bank of America CEO Brian Moynihan told CNBC on Wednesday. “Consumers are spending, credit quality is very good and improving. … We all face the same uncertainty, but U.S. companies and consumers are doing well right now.”

But consumer psychology is fragile. The University of Michigan’s monthly consumer sentiment survey fell to 47.6, the lowest level on record, down 10.7% from the March survey.

This consumer push and pull is creating a ripple effect across the US

Bowlero operates more than 350 bowling attractions across the U.S., and its traffic was down an average of 10.6 percent in March, according to Placer.ai data.

Dave & Buster’s, which has 170 adult food and beverage venues across the USA, experienced a 4.5 percent decrease in traffic in March.

Main Event, which is owned by Dave & Busters and offers similar food and entertainment activities at more than 50 outlets, saw a 7.6 percent decrease in traffic in March, according to Placer.ai data.

Escape rooms overall fell an average of 6.7 percent in March.

Signs of weakness before the US-Iran conflict

Dig a little deeper, though, and it shows that Americans are still willing and able to settle for something they really want. While bowling alleys and other venues experience traffic delays in March, this is not the case for cinemas. “Movie theaters have bucked this trend, fueled by a slew of new releases like Project Hail Mary and The Super Mario Galaxy Movie,” Hottovy said.

For some entertainment-based businesses, consumer softness had begun long before the war.

Dave and Buster’s to stock It was under pressure until mid-2024 as recent geopolitical issues fueled negative investor sentiment. Past management mistakes have been addressed by a new leadership team that is now spearheading a turnaround effort. But Wall Street clearly has war on its mind; The CFO responds to a question from a Jefferies analyst on the March 31 earnings call about a world that “changed a lot in March.”

“CFO Darin Harper said that from a macro perspective, there’s a lot going on, from gas prices to consumer sentiment and the like. He said it was difficult for the company to assess any macro impact to the changing holiday timing this year, including spring break and Easter. “So, typical of our business, we like to get through this spring break period and try to get a better read on things. We know it’s definitely there, but it’s too early to really analyze what impact it’s having,” Harper said.

Dave & Buster’s did not respond to a request for comment.

Hottovy says the latest data shows the stark impact of the war. “Visits to food and entertainment and escape room venues have been consistently down year-over-year since mid-February,” he said.

Mark Flint, CEO and co-founder of Escape Game and Great Big Game Show, one of the nation’s largest escape room operators, said his company was aware of data from Placer.ai on experiential categories and erratic traffic patterns that coincided with changes in spring break dates from the previous year. “We were expecting a year-over-year decline for this time of year, but some concepts and categories appear to have been impacted more than expected,” Flint said of the March figures.

But he said the impacts his businesses were seeing were not as pronounced as the overall category data, and that the annual numbers in April were up so far compared to the previous year. In his view, if you’re running a business where people want to come, “that creates a buffer against the impact of what we consider temporary ebbs and flows from these kinds of world events.”

Flint said the company is investing $40 million in new stores and new experiences across the U.S. this year, and there are no expected changes to that plan “regardless of the macro environment.” “A great game played with loved ones in a great setting is always valuable to our guests, even more so when the going gets tough,” added Flint.

No reason yet to consider permanent change in the ‘fun’ economy

When gas prices rise, it’s textbook consumer behavior, said Mark Johnson, a lecturer in investments and portfolio management at Wake Forest University School of Business.

“When people spend more to fill their tanks, the first things they go to are fun and discretionary items. It’s easy to put off those things, but rent, car payments and groceries are not,” Johnson said. While discretionary and “fun” spending may seem unimportant, from a macroeconomic perspective it is not. “This is more important than people realize because discretionary spending is a big part of what keeps local economies growing,” Johnson said. he added.

The good news, according to Johnson, is that the “fun” retreat is often a pause rather than a permanent change, and a quick end to hostilities in Iran is likely to bring people back to bowling alleys and escape rooms. “When gas prices drop and budgets become less tight, people tend to bounce back pretty quickly,” Johnson said. The desire to go out and do something does not disappear; It just delays.

On Friday, President Trump once again stated that the war was nearing its end, and Iran opened the Strait of Hormuz to all traffic, causing oil prices to fall by up to 9 percent. However, on Saturday morning, Iran regained control over the waterway after gunfire.

“The question is how long will this last,” Johnson said. “I think this increase in gas prices may last longer than many people expect. If it does, inflation could spread to more parts of the economy and some discretionary spending habits could begin to change in ways that are harder to reverse,” he added.

A recent consumer sentiment survey by Ernst & Young Parthenon shows that 27 percent of consumers are pulling back from discretionary spending.

“While gas prices are not the sole reason for the pullbacks, households are becoming more selective, prioritizing essentials,” said Will Auchincloss, Americas retail industry leader at EY Parthenon. “As the dollar shifts toward non-negotiables like food and housing, we are seeing targeted declines in fitness and entertainment.”

Consumers feel more confident about managing their budgets even if stress and uncertainty remain high, Auchincloss says, and if broader cost pressures ease “we’re likely to see a gradual recovery in consumer spending.”

Meanwhile, back at Cycling Quests, Evans watches the recordings with concern. He describes a long, complicated record recovery from Covid, only to be halted by tariffs.

“Last year we had events trending well ahead of previous years, then the schedules were announced and registration stopped. It stopped,” said Evans; only a trickle rather than a steady stream for weeks.

“As long as there is geopolitical chaos, there will be chaos in the entertainment economy and people will hesitate about whether they should save their money or enjoy life normally. This is unpredictable,” Evans said.