Retail sales were up 5.6% in December from the year before. But how are consumers thinking about the future? According to the New York Federal Reserve’s December household survey, released Tuesday, the median consumer expects their spending growth on essentials — think daily living expenses — to decline in the year ahead. But their spending growth on nonessentials — hobbies, things they do for fun — will stay pretty much the same.
Meanwhile, consumers say they’re more likely than they were in the last survey, in August, to hold off on purchasing certain big-ticket items. But they say they’re more likely to buy something even bigger.
Wells Fargo senior economist Tim Quinlan calls this household spending survey aspirational, kind of like his own New Year’s ambitions.
“I want to, you know, eat healthier, exercise more, drink less,” he said.
Consumers aspire to spend less on certain items, like electronics. Quinlan said we’ll see them try to redirect that money toward purchasing homes.
“I think what’s getting picked up in this survey is the intention of these households to finally get a piece of the pie in the housing market, which is an understandable aspiration,” he said.
Meanwhile, a number of everyday expenses, like food and fuel, have stopped having wild price spikes.
That means consumers could expect those essentials to increase less this year and still keep their fun budgets — which have become a priority — humming along.
“Maybe people are saying, ‘OK look, the kinds of services I like buying just for fun — manicures or whatever — those things are not getting any cheaper, and I’m going to spend about the same amount on those. But I’m not gonna have to spend as much on gas,” said Ethan Struby, an economist at Carleton College who used to work for the Federal Reserve.
Beauty is a sector to watch, said Natalie Kotlyar, who follows retail trends for BDO.
She pointed out that we’re already seeing consumers spend more on skin care, make-up, candles. “Just to kind of give themselves a little bit of a lift. You know, a retail happy purchase,” she said.
It’s a form of feel-good discretionary spending that can still be economical — fun without blowing the whole budget.
