The Honey Deuce Economy

At the US Open, amidst the roar of the crowd, a positive economic story is being told. It’s in the sale of the “Honey Deuce,” the tournament’s signature cocktail, priced at a notable $23. The drink’s immense popularity, with over 556,000 sold in 2024 for a revenue of nearly $13 million, speaks to a powerful segment of the consumer economy. This year’s continued strong demand from the tennis fans in attendance provides a clear picture of high-end discretionary spending. Yet this tale of luxury spending, and similar examples of consumer strength among those with high spending power, provide clues to the complex challenges facing the Federal Reserve. As it considers its next move, the central bank must navigate a landscape of diverging economic realities.

While many tennis fans cheerfully purchase premium cocktails, a far more cautious sentiment has been brewing elsewhere. The University of Michigan’s latest consumer confidence survey offers a starkly pessimistic perspective. In August, the index dropped by about 6% to a three-month low, a decline visible across age and income groups. This dip is primarily fueled by growing anxiety about the labor market. Roughly 60% of consumers now expect unemployment to rise in the coming year. Such a clear divergence between the free-spending luxury consumer and the anxious household means the Fed must balance on a policy tightrope.

There are increasingly clear signs that many consumers are pulling back. New import tariffs weigh on the confidence of American households, with most consumers anticipating they will lead to higher prices. Many are already citing tariffs as a reason to postpone large purchases, especially cars. With only 24% of consumers stating they will continue spending as usual, many are actively reshaping spending decisions, especially by reconsidering non-essential purchases.

Away from cocktails on Instagram, recent economic data tells a story of moderation. Dining at restaurants, a barometer of discretionary spending, has been largely flat over the summer months. Preliminary data from the U.S. Census Bureau even showed a slight decline in restaurant sales volume for July. The leisure and hospitality sectors are showing signs of a slowdown. Las Vegas, for example, has seen a significant cooling, as reported by the Las Vegas Convention and Visitors Authority. In July, visitor volume to the city fell by a sharp 12% compared to the previous year. This was accompanied by a 7.6 percentage point drop in hotel occupancy. A growing number of Americans seem to be curtailing discretionary travel.

This brings us back to the Honey Deuce. Its sustained success is a powerful symbol of resilience within one sphere of the economy. However, this is in sharp contrast to the broader data showing a consumer base growing more cautious and concerned. For the Federal Reserve, this bifurcated reality presents a major challenge. The path forward requires a policy delicate enough to address inflationary pressures without undermining a labor market showing signs of strain. Navigating this divide, where a $23 cocktail represents both conspicuous confidence and a widening economic disparity, is the crucial task ahead.

Cam Simonds