This Latest Study Shows That the U.S. Consumer Could Be in Serious Trouble

The past five years and four months have been incredible if you're an optimistic investor. The S&P 500 has practically tripled while the Dow Jones Industrial Average has jumped better than 10,500 points from its lows.

For all intents and purposes, it would appear that everything is heading in the right direction. The U.S. unemployment rate clocked in at its lowest level in June since September 2008 at 6.1%, the housing sector is seeing robust home price increases as historically low mortgage rates and tight housing inventory have combined to buoy demand and buying urgency, and the manufacturing sector in June expanded at its fastest pace in four years.

Yet skeptics are everywhere -- and I'm one of them.

Source: Marco Arment, Flickr.

There have been tangible warnings signs that would imply the S&P 500 and Dow Jones are running on borrowed time, but none have materialized into a long-awaited significant pullback in stocks as of yet. Among those signs is the implication that interest rate are set to rise in 2015, which could drastically slow lending, as well as the fact that corporate share buybacks and cost-cutting are at their highest levels in years. Don't get me wrong -- improving operating efficiency is important for businesses, but masking organic growth through buybacks and cost cuts isn't a long-term growth solution.

However, a poll from Gallup released a little more than one week ago that took a deeper look at consumers' spending habits could be the fuel for the fire that pushes the market over the edge.

Consumers sounds a warning. Will you listen?
Gallup polled more than 1,000 Americans living across the United States and asked them whether they were spending more, spending about the same, or spending less on a number of goods and services ranging from basic necessities like groceries, health care, and mortgages or rent, to discretionary things like travel, dining out, and even retirement investments.

Here's how consumers responded: 
Are you spending more, about the same, or less on these goods or services compared to last year?

Source: Gallup.

Before I get into the nitty-gritty of why these responses are worrisome, I should also point out that for investors and businesses it isn't all bad news.

Source: Walmart, Flickr.

As you'll note from the responses, the greatest discrepancy of paying more compared with the year-ago period comes from basic-needs items. People need groceries, gas for their car, and electricity for their home, and they have to buy household goods and personal-care products. These aren't discretionary items, and the businesses that make these products know it, which means they rarely have any incentive to discount these items to persuade consumers to buy. Long story short, basic-needs stocks are still maintaining their pricing power and should continue to outperform over the long run.

But this isn't necessarily good news for consumers, unless they're invested in these basic-needs stocks, that is! In theory, if consumers' wages aren't moving higher at a comparable pace with the increases witnessed in these basic-needs items, then the consumer and their families are witnessing their budgets getting pinched -- which is a distinct possibility given these responses.

As Gallup's responses clearly show, the more discretionary the item becomes, the more likely consumers are to holster their wallets at the moment. This is especially bad news, because discretionary items and services often pack beefier margins for the businesses behind them, and they're ultimately what winds up pushing the U.S. economy over temporary speed bumps.

These sectors could be in big trouble
The end result could be that fewer Americans take spendy vacations, dine out, or buy clothes, which could have negative implications on a number of key companies.

Source: American Airlines.

The airline sector has been on a tear for years, but Gallup's data would appear to indicate that consumers are planning to stay closer to home this year. Although more Americans are planning to travel now than at any time since the recession, more people are vacationing using their family car rather than flying. This makes things precarious for an airline like American Airlines Group (AAL 0.64%), which is sporting a sky-high $7.6 billion in debt, is still trying to put the final touches on its American Airlines-US Airways integration, and is often among the lowest ranked airlines to begin with when it comes to customer satisfaction.

When it comes to dining out, any reduction in spending would be a hard pill to swallow for the struggling Darden Restaurants (DRI 0.14%). Darden managed to jettison its Red Lobster brand in an attempt to focus all of its efforts on turning Olive Garden around. However, after years of declining and/or stagnant sales, a reduction in budgets to dine out could be a nail in the coffin for its turnaround efforts.

Retailers have had plenty to worry about for months, with the polar vortex wreaking havoc on their first-quarter results. With respondents noting that they're also spending less on clothing this summer, it could be a lose-lose type of year for the entire sector. That's especially bad news for J.C. Penney (JCPN.Q), which is in the midst of a multi-year turnaround campaign. Penney's investors will need to see strong back-to-school and holiday season sales to determine whether the company is back on the right track, but this latest poll would imply that the opposite may occur.

Source: BayIntegratedMarketing.

But did you notice this?
Perhaps an even more glaring find in Gallup's data is that spending on retirement investments grew at a slower pace than any other good or service listed in the table. Worse yet, 17% of people decided to put less toward their retirement. The implication here could be that a number of investors are concerned about the markets' lofty valuation after a five-plus-year run higher and simply aren't comfortable putting more money to work than in the previous year.

As a skeptic, I see the writing on the wall, and it's plain as day. The question is, do you see it, too?