The Tipping Backlash Has Begun

US: People are cutting back on tipping, frustrated by ubiquitous requests for gratuities.

As of November, service-sector workers in non restaurant leisure and hospitality jobs made $1.28 an hour in tips, on average, down 7% from the $1.38 an hour they made a year prior. The data is according to an analysis of 300,000 small and medium-size businesses by payroll provider Gusto.

The tipping slowdown is a gloomy development for all types of workers who rely on holiday tips as a chunk of their annual income. It reflects a broad frustration with the proliferation of tip requests at dry cleaners and bridal boutiques and even self-checkout machines that have sprung up since the pandemic.

Mary Medley, a Denver retiree who described herself to The Wall Street Journal in July as a unilaterally prolific tipper, is one of those who has become more discerning in recent months.

“It feels not as good to tip now that it’s popping up everywhere,” says Medley, 70 years old. “What started out to be a way to acknowledge excellent personal service feels like it’s become a way to help supplement worker compensation.”

There is a cost to the tipping slowdown, however, say economists and business owners. When people tip less, workers suffer, says Jonathan Morduch, a professor of public policy and economics at New York University.

“We’re in a situation where workers still want and expect and need tips to some degree,” Morduch says.

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Some businesses are raising worker pay in part as a response to lower gratuities.

Dan Moreno, founder of Miami-based Flamingo Appliance Service, says he has noticed a slowdown in customers leaving tips for their repair people since the Journal spoke with him in July. The average base wages for his techs have gone up about 10% since then, though he hasn’t eliminated the prompt from point-of-sale machines.

“I don’t know if that’s because customers are just over it. I’ll tell you, personally, I’m a little bit over it,” Moreno says of how his own tipping habits have changed over the past year.

Meanwhile, governments have started to get involved.

In October, Chicago became the second-largest U.S. city to vote to require tipped workers to make the full minimum wage. The full federal minimum wage is $7.25 an hour, while the federal tipped minimum wage many bar and restaurant workers earn is $2.13 an hour. Legislation to get rid of tipped minimums is moving in eight states and measures are on the ballot in an additional four, according to worker-advocacy organisation One Fair Wage.

“There’s an ongoing rejection of the whole system by both workers and consumers who have been increasingly pissed about it,” says Saru Jayaraman, director of the Food Labor Research Center at the University of California, Berkeley and president of One Fair Wage, an advocate for higher wages for restaurant workers.

Restaurant workers earned an average of $3.83 an hour in tips and overtime in November, according to technology company Square, up 8% from the previous year. Between November 2020 and November 2022, that amount rose 50% from $2.36 to $3.54 an hour.

While governments, workers and owners wrestle with what to do about tipping, consumers have embraced the humor in tipping’s massive expansion into so many parts of life. Jokes mocking tipping’s proliferation have spread on social-media sites. In one image, a police officer holds out a tablet with different tip options after giving someone a speeding ticket. In another, someone pretends to ask for a tip for letting a stranger pet her dog.

Garrett Bemiller, a 26-year-old who works in communications, started to question his standard practice of always leaving 20% after being asked for a tip at a self-serve checkout station at an OTG gift shop in New Jersey’s Newark Liberty International Airport in April.

“We all know how absurd it is that it almost relieves some of that guilt in saying no,” he says.

He now always hits “No Tip” when he’s buying a black coffee—even when friends are watching.

Holiday tips

One area people might not cut back is tipping for the holidays.

Of the 2,413 U.S. adults surveyed by financial services company Bankrate, 15% said they planned to leave more-generous tips for workers including housekeepers, child-care workers, landscapers and mail carriers this year. About 13% said they planned to leave less.

Median amounts are so far up from last year across the six types of service providers Bankrate asked about.

“It seems that people view holiday tipping differently, perhaps because of the holiday spirit and also because of the regular interaction with many of these service providers,” Bankrate analyst Ted Rossman says.

Bemiller plans to give the super in his New York City building $100—not because he feels like he has to, but because he wants to.

“She helps me so much throughout the year and that tip seems genuinely justified,” he says.

Chip makers are fighting to assure investors that the artificial-intelligence boom is racing forward. Wall Street might not believe it until Nvidia’s NVDA -0.98%decrease; down pointing triangle Jensen Huang says so.

When Huang steps up to the mic for his company’s earnings call Wednesday, he will have the world’s attention. What he says about Nvidia’s present will preview the future of AI, dictate the path forward for a tech-crazed stock market and influence an American economy increasingly tethered to hopes that the boom won’t go bust.

The $5 trillion chip maker has provided the key building blocks for AI since the launch of ChatGPT in 2022 set off a race for dominance among OpenAI, Anthropic and established Silicon Valley giants. Now, as Nvidia backstops sprawling data-center projects and an exotic money pipeline to boost chip demand, the company’s influence is arguably bigger than ever.

But there are signs of trouble ahead. Political pushback to AI is growing. A bond selloff propelled borrowing costs to their highest levels in years. The hyperscalers that include some of Nvidia’s key customers—once cash-printing machines—are relying more on debt. OpenAI recently told investors its revenue rose by a tepid 18% in the second quarter while its losses deepened.

Nvidia is increasingly stepping in to shore up potential weak points across the market. Earlier this month, the company teamed up with six of Wall Street’s biggest firms on a $500 billion AI-financing plan, pledging to backstop lending to customers that can’t afford its chips otherwise. The chip maker last week also took a stake in Cloverleaf Infrastructure, which arranges power for data centers, and struck a $6 billion deal with startup Poolside aimed at developing a powerful open-weight AI model.

After watching shares in other chip makers and the so-called Magnificent Seven tech companies swing wildly in recent months, Wall Street is hoping Nvidia can beat expectations—again. The countdown is on.

“It’s kind of becoming more and more like the World Cup final than the Super Bowl at this point,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “It’s just gotten to be that big.”

The company has smashed analysts’ earnings estimates for each of the 14 quarters since the AI boom kicked into high gear. Nvidia posted 210% annual growth in net income in its last three-month period, according to FactSet, making Wall Street’s 126% projection look pedestrian.

Expectations for a blowout second quarter have risen rapidly over the course of this year. All Nvidia will have to do to beat this target: outrun 95% annual earnings growth to more than $51.5 billion. Analysts project the chip maker will report record sales of $92 billion for the period, up from a forecast of $78 billion at the start of this year.

In July, big-tech earnings sparked volatility. Concerns about runaway capital spending spread across the sector after Alphabet’s and Tesla’s results, driving a $890 billion wipeout that contributed to the unwind of hedge fund Situational Awareness. Microsoft posted the largest one-day gain in market capitalization by any company, ever, after a quarter proving that it could still show investors the money. SpaceX rocketed higher after a record-breaking initial public offering, only to see $1 trillion in value evaporate.

Surging memory prices and borrowing costs have fueled fears that those and other companies will be unable to keep plowing more money into supplies including Nvidia chips. Shaia Hosseinzadeh, founder of OnyxPoint Global Management, has recently bought dips in AI-infrastructure stocks when Wall Street has strained to absorb massive debt issued by Silicon Valley.

“The macro data is really quite robust,” he said. “Of course, there’s a level at which everything breaks.”

Investors have kept pumping money into the AI trade despite concerns around chip consumers—and to the benefit of chip producers. That is why Nvidia’s outlook for semiconductor demand could send ripples through counterparts such as Micron Technology and Sandisk, developers of the data centers in which their chips reside, and a supply chain of power producers, contractors and other specialists that underpin the globe-spanning AI build-out.

“We joke internally that we’re all Nvidia analysts now,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management.

The irony is that investors have tended to sell Nvidia stock immediately after blockbuster earnings, with shares falling each trading session after its four past quarterly reports. Some are betting that will be the case this time around, too.

The options market is pricing in a 5.3% swing, higher or lower, in Nvidia shares during the session following earnings, according to Option Research & Technology Services. That is higher than the 4.8% average move in Nvidia’s stock over the last 12 months after the company reports quarterly results.

In recent days, some of the most actively traded Nvidia options have been put contracts tied to the stock falling from its Friday value of $214.75 to $205 and $210 apiece, according to Cboe Global Markets data. Put options give the right to sell a stock by a set price and typically represent a bearish wager.

Many analysts remain optimistic. Frank Lee, global head of tech hardware and semiconductor research at HSBC Global Investment Research, recently raised his price target for Nvidia shares to $360 from $325, citing, among other things, Nvidia’s strategic partnerships with suppliers and its role as a top contributor to open-source AI.

The Tipping Backlash Has Begun

As of November, service-sector workers in non restaurant jobs made 7% less in tips than a year ago

Up next

Holiday tips

Nvidia’s earnings will test Wall Street’s confidence in the AI boom.