Consumer Spending Expected to Remain Robust in 2025
Despite rising costs and interest rates, US consumers are poised to maintain their strong spending habits in 2025. According to Goldman Sachs analyst Brooke Roach, a combination of factors, including improved consumer sentiment, moderating gas prices, easing inflation, and a better interest rate environment, will drive this trend.
Retail Sales on the Rise
November saw a 0.7% increase in retail sales, surpassing Wall Street’s expectations of 0.6%. This upward trend is mirrored in the US economy, which grew 3.1% in the third quarter. Furthermore, weekly jobless claims dropped to 211,000, a key indicator of consumer spending.
Disposable Income and Food Inflation
Disposable personal income continues to grow, albeit at a slower pace, while food inflation remains at a low-single-digit increase. These factors contribute to a positive outlook for consumer spending.
Competition for Shoppers’ Dollars
Brands, retailers, and restaurants must compete for consumers’ attention and wallets. According to Roach, share gains will be focused on retailers offering innovation, newness, or sharp value. Off-price retailers, such as TJX, Ross Stores, and Burlington, are expected to perform well in 2025.
Apparel and Accessories
Innovative brands with growth potential, like Amer Sports and Tapestry, are likely to attract consumers. Their focus on providing newness and innovation at a sharp price point will drive sales.
Fast Food Giants
McDonald’s is making a splash with its new national value platform, starting on January 7. This move is seen as a continuation of the trend towards affordability and value. Other chains, such as Burger King, Jack in the Box, and Wendy’s, may face headwinds due to increased value competition.
Fast Casual and Used Cars
Fast casual restaurants, like Chipotle, Cava, and Sweetgreen, are expected to gain share. The used car space, particularly Carvana, may benefit from the gap in affordability between used and new cars.
Tariffs and Inflation
President-elect Donald Trump’s proposed tariffs and policies may have inflationary effects, potentially impacting lower-income shoppers. However, the impact of these policies on consumers is uncertain and may not be felt until mid-2025.
Discretionary Sales
Both Jefferies and Goldman Sachs predict a return to growth for discretionary sales in 2025, driven by strong core consumer behavior. Target, Bath & Body Works, and Dick’s Sporting Goods may benefit from this trend.
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