Consumer Spending: A Resilient Outlook into What’s Coming in 2024

consumer spending
Key Points
  • Consumer resilience complicates Fed messaging
  • Markets are pricing a significant probability of a Fed cut
  • Resilience in consumer spending creates risks that inflation could be stickier than the Fed would like.
  • Consumer seeking value, being more selective in spending
  • Employment indicators have deteriorated, and rates might be higher for longer

In the intricate dance of the economy, consumer spending has always been a lead performer. Recent data from BAC aggregated credit and debit cards reveals a subtle yet significant uptick in household expenditures. The numbers are modest and the trajectory is clear: consumers are cautiously opening their wallets.

Mixed Signals in the Economy

  • Total card spending per household (HH), as measured by BAC aggregated credit and debit cards, was up 0.5% year-over-year (y/y) in November.
  • Card spending per HH rose 0.2% month-over-month (m/m) in November on a seasonally adjusted (SA) basis.

The festive season around Christmas time has always been a traditional barometer of consumer confidence, and it has offered its own narrative this year.

  • Spending has dipped by 2.0%, analysts suggest a shift in the timing of Thanksgiving rather than a decline in festive fervor.
  • Concurrently, a significant drop in gas prices has curiously weighed on overall spending, clouding the true spirit of consumer behavior.
  • The first week of December alone saw a 1.8% year-on-year surge in card spending.
  • This is not merely numerical noise but a testament to the ongoing disinflation in goods, allowing real spending power to stretch further than the previous year.

Sector-specific trends paint a more nuanced picture. Let’s take a look at several sectors.

  • Online retail spending has enjoyed a post-holiday season boost.
  • Furniture stores face the chill of negative growth.
  • Lower-income households seem to be indulging more in restaurant outings, possibly a response to rising grocery prices.
  • Clothing expenditures have not kept pace, possibly reflecting a shift in priorities or a saturated market.
  • Airline spending soaring in late November, hinting at economic vitality
  • Lodging expenditures continue to struggle.

Amid these mixed signals, the Federal Reserve finds itself at a crossroads. Market predictions of interest rate cuts as early as March 2024 have emerged, suggesting a dovish stance in response to resilient consumer spending and moderated inflation. Yet, the Fed’s cautious tone suggests rate reductions may not materialize until mid-2024 at the earliest.

Rise of the Bargain Hunters

As the lower-income demographic adapts to economic pressures by favoring more value-for-money meals over single-serve options, one can’t help but ponder the ripple effects on related markets.

  • Core inflation may have softened, driven by essentials like flour and oil, but the question remains:
  • Are consumers merely resilient or are they seeking solace in promotions and value purchases?
  • Lower-end consumers are squeezed — bad news for discount retailers like Dollar Tree.
  • Consumer seeking value, being more selective in spending
  • Restaurant spending growth was more robust among lower-income households.
Consumer Google search few years ago..
this is completely satire, but sadly completely true
  • Have food prices been rising? Absolutely. Thanks to a combination of inflation, pandemic-related supply-chain disruptions and tariffs on certain foreign imports, food prices have steadily risen since 2020.

“Consumers continue to seek out our brands as they look for ways to stretch their food budgets and turn to value-driven meals that … are easy to prepare,” – Mark Clouse said, Campbell CEO

  • Adjusted retail and food sales and credit card balances are up on a y/y basis as consumers continue to spend amid higher inflation.

Love Thy Job

Well, you should. Numbers are not looking good in the employment sector. With prices of goods still being on the rise, do whatever it takes to keep your job. Though it has softened by going 4% south, there are still some whispers that are not pointing in the right direction when it comes to talking about unemployment.

2024 01 10 13 11 18
  • Companies holding back on layoffs during the holidays, but they’re still reluctant to hire
  • They are showing signs they are focused on cutting costs
  • What does this point to? → Recession. Big corps are getting ready.
  • Job growth has slowed down this year, expected to last until end of year with higher number of unemployment.
  • Ratio of vacancies to unemployed workers has decreased to 1.3 from 2.0 (April 2022).
  • The drop in this ratio suggests that it is much harder to find a new job than it was 18 months ago, when the labor market was red hot.
  • Wage growth for job switchers has also declined significantly.

Recession? Highly unlikely.

The financial health of consumers seems robust by most metrics, yet there are signals of weakening. As inflation starts to ease, the Federal Reserve’s suggestions of continued increases in interest rates create a concerning outlook for the future.”

  • BofA Global Research forecasts a gentle economic downturn with unemployment peaking later in the fourth quarter of 2024.
  • Recesssion appears unlikely — or very mild, because consumer spending should still remain solid
  • Economy has proved to be very resilient to higher interest rates.
  • Recent macroeconomic data shows signs of moderating growth but still no sharp deceleration, particularly for the Consumer.
  • This year’s holiday spending data look even stronger given ongoing disinflation in goods.
  • Resilience in consumer spending, as evidenced by the latest BAC card data, creates risks that inflation could be stickier than the Fed would like.
  • Market forecasts indicate that there might be reductions in interest rates by March 2024, which would mean a more growth-focused approach due to strong consumer spending and less rapidly increasing prices.
  • However, the Federal Reserve’s careful approach hints that these interest rate cuts might not happen until the middle of 2024 or later.

Time to clear out that inventory

So, hold your horses and put a pause on that economy driven anxiety. Recession is NOT going to happen any time soon. Consumers are still spending, though very wisely, and we might see a fall in rates in the future.

If there’s two things you could take away from this article is that, consumers are very much actively seeking for deals. As business owners, take this into serious consideration and use it to your advantage. If you need to clear out inventory, now is the time.

The economic landscape is always evolving, but one thing remains constant: the consumer is both the gauge and driver of economic health. With the holiday season in Q423 that looks to be underpinned by bargain hunting and smart spending, businesses and policymakers alike should pay close attention to these spending trends—they’re not just numbers, they’re the heartbeat of the economy.

Secondly, the year is still very new, so the real economic story may be unfolding in the undercurrents. Loan delinquencies coupled with the fact that companies are holding back on hiring and layoffs, points to a larger narrative of cautious optimism tempered by the reality of a slow-moving economy, so be sure not to take unneccessary loans that might jeopardise your pockets, and your print shop!