A nice idea turned into a devasting quarter for Red Lobster.

The restaurant chain is famous for its “Endless Shrimp” deal.

Normally, it rolls out this deal for a day or two when things are slow.

But this summer, Red Lobster put its “Endless Shrimp” deal on the menu for $20 – every day – for as much shrimp as you wanted.

And while it did draw in a big crowd, the company got more than it bargained for…

Too many customers came in asking for the deal. And it became one of the main reasons the company reported an $11 million loss in the third quarter.

Red Lobster has since hiked the “Endless Shrimp” deal price up to $25. And it’s no longer available every day.

But its failed promotion just goes to show that consumers are getting more concerned about prices and hunting for good deals everywhere they can find them.

Today I’ll show you why Americans are cutting back spending and what it means for the economy. I’ll also show you how to protect your portfolio as things start looking bleak.

Why Americans Are Cutting Back Spending

Eight times a year, the Fed publishes a report that gathers anecdotal information on current economic conditions throughout the country.

Its official name is “Summary of Commentary on Current Economic Conditions.”

Try saying that three times fast.

It’s more commonly called the “Beige Book” – because that’s the color of its cover.

The latest Beige Book included several reports that show that the economy is slowing down:

• The Dallas Fed reported “the pace of hiring decelerated broadly, and some freight carriers, high-tech, and manufacturing companies reported layoffs.”

• The Minneapolis Fed reported “banking contacts noted increased use of credit card and home equity lines of credit to maintain spending levels.”

• The Kansas City Fed reported “consumers were increasingly likely to ‘share a roof and share meals’ to manage household budget challenges.”

The stories match what retailers have been saying about consumer spending…

Walmart said it saw a falloff in sales in October. Target said buyers were being more careful. And Dollar Tree said lower-income folks were facing increasing financial stress.

Retailers hired fewer people to staff stores and had to offer bigger discounts to attract holiday shoppers this year as I wrote about last month.

The slowdown is also showing up in the job market. There were over 12 million jobs available in March 2022. The latest report shows that number has decreased to 8.7 million.

The unemployment rate has also increased from 3.4% in January to 3.9% in October.

Raises are getting smaller. Workers are quitting less because they don’t have another job lined up.

It all adds up to people having less money to spend.

And that’s a big warning sign… because more than two-thirds of the economy depends on consumer spending.

How to Protect Your Portfolio

So now’s the time to consider putting more of your portfolio into defensive investments like healthcare, utilities, and consumer staples.

These are sectors that will continue to have steady demand for their products and services, even in a recession.

One company we like in the consumer staples category is Kroger (KR), a giant grocery store chain.

People still need to eat when times get tough.

And instead of going out to restaurants, they’ll decide to buy more groceries and cook at home… Especially now that offers like Red Lobster’s $20 “Endless Shrimp” deal are off the table.

That’s one of the reasons Kroger’s earnings increased during both the Financial Crisis and the pandemic.

And as I showed you last month, Kroger is using artificial intelligence (AI) to make its business even more profitable.

On top of that, Kroger is a reliable dividend grower that has increased its payout 18 years in a row.

It currently yields 2.6%.

And its shares trade at 9.8x earnings. That’s a 26% discount from its historical average of 13.3x earnings.

So now is a great time to invest in Kroger and protect your portfolio as consumer spending slows.

Happy SWAN (sleep well at night) investing,

Brad Thomas
Editor, Intelligent Income Daily