The Sausage Indicator: Everything You Need to Know

What does sausage tell us about the future prices of gold and silver, as well as what might happen with the stock market? Let's take a closer look at what the Federal Reserve knows about sausage and what this means for the US economy. This important indicator should not be ignored.

A poll from the Dallas Federal Reserve released last week shows that one maker had 'modest growth' in their sausage product category. Increased demand for sausages may signal that U.S. households are trying to save more on food. Surprisingly, sausages are among other food products closely associated with economic downturns.

Americans swapping steak for sausage in their shopping carts could be a subtle hint that the economy is slowing down. The Dallas Fed's Texas Manufacturing Outlook Survey, released Monday, reported one food manufacturer had 'modest growth' of its dinner sausage sales. The producer said that a rise in demand for sausages usually comes along when the economy starts to slow down, and consumers look for inexpensive proteins rather than expensive meats like beef or chicken.

'Sausage tends to gain popularity when the economy slows, as it's a cost-effective protein that can help stretch food budgets,' the producer commented.

One thing that is happening post-COVID is that grocery prices increase due to high inflation. The new inflationary environment is eating into consumer finances—making value more of a priority for Americans. We saw that in recent earnings reports from big firms, such as McDonald's and Amazon. On its July earnings call, McDonald's executives noted that their lower-income customers are resisting eating out because of high prices, forcing the fast-food behemoth to promote its $5 value meal. Amazon joined in and said that bargain-hunting shoppers have affected its business.

Inflation fell dramatically in July to 2.9%, coming down from the early summer 2022 high, but it is still a worry. This was the first time inflation had been reported under 3% since March 2021. The Federal Reserve is still at 2% inflation and is tipped to have an interest rate cut this September, which may give a reprieve. Traders price in a 25-basis point reduction with a slightly smaller chance of a 50-basis point cut.

This shift in consumer behaviour underscores the broader economic challenges we face, which are further explained in our latest macro and global liquidity analysis released last Friday.