Consumers’ Discretionary Spending Tumbled in March

The following analysis is based on Morning Consult’s proprietary consumer spending, purchasing intentions and price expectations data series. Read more in our April 2022 U.S. Consumer SpendingReport.

In recent months, several competing factors have been influencing U.S. consumer spending patterns, bearing vital implications for overall economic growth amid mounting concerns about recession risks. First, inflation hit a four-decade high in March, adding urgency to efforts to measure the degree to which rapid price growth may be discouraging consumer spending. Relatedly, many are anticipating that spending will become increasingly concentrated on services as consumers grow less sensitive to pandemic impacts — a development that could help ease inflationary pressures from lingering supply chain bottlenecks.

The U.S. Census Bureau’sadvance monthly retail salesreport, released earlier this month, suggested consumer demand was fairly resilient in March despite rising inflation, while a decline of online sales was interpreted as progress toward the return to pre-pandemic habits. The government data provides an incomplete picture of consumer spending, however, as it is limited to retailers and excludes most services. Morning Consult’s consumer spending data complements the story contained in the government data by offering a more holistic view of household purchases as reported by consumers.

In March, Morning Consult’s consumer spending data — which is nonseasonally adjusted — showed pronounced declines in discretionary spending as inflation rose faster than incomes, pinching household budgets. However there were also signs that consumers are prioritizing services spending, signaling that some inflationary pressures may ease going forward.

Consumers cut back on nonessential purchases last month

In March, growing concern about inflation and geopolitical unrest weighed downconsumer sentiment. Rising prices for household staples leave consumers with little choice but tospend more on essential itemslike gas, food and housing. Mounting affordability concerns therefore led to cuts in discretionary consumer purchases. Recreation spending had the biggest drop in spending from February, while travel categories, alcohol, home furnishings and apparel also registered declines.

Price sensitivity was a top factor driving the cutbacks: In a separate survey from March, 46% of respondents who considered but opted not to book vacations said price was the motivating factor, along with 37% and 36% of prospective buyers who said the same of furniture and apparel purchases, respectively. These same categories also registered rapid price growth over the past year: Airline fares and hotel prices were up 24% and 29% year over year, respectively, while supply chain disruptions contributed to a 16% price increase for furniture and apparel costs grew 7% during that time.

Price sensitivity was a top factor driving the cutbacks: In a separate survey from March, 46% of respondents who considered but opted not to book vacations said price was the motivating factor, along with 37% and 36% of prospective buyers who said the same of furniture and apparel purchases, respectively. These same categories also registered rapid price growth over the past year: Airline fares and hotel prices were up 24% and 29% year over year, respectively, while supply chain disruptions contributed to a 16% price increase for furniture and apparel costs grew 7% during that time.

Consumers increasingly prioritize services spending

Even as affordability concerns tested consumers’ appetite to spend, consumers in March grew increasingly numb to pandemic concerns. The consequential shift in spending allocations may help counteract inflation by channeling more demand to services rather than goods.

While the overall share of wallet allocated to discretionary categories has shrunk in recent months, consumers appear less inclined to cut services spending than goods spending: Since the beginning of this year, a widening gap has emerged between the spending allocations for nonessential goods and services, with services’ share of wallet increasing slightly since January while the share for goods purchases sank lower. Additionally, restaurant purchases were one of the few categories that increased in March as consumer comfort with dining outtrended steadily higher.

Lingering risks mingle with optimistic signals

The sizable cutbacks in discretionary spending in March offer the worrying — but not necessarily surprising — proof that consumers are tightening their purse strings as inflation growth outstrips rising incomes. The report provides evidence that if inflation stays elevated, demand will suffer, underlining the stakes as the Federal Reserve seeks to tame inflation in the coming months.

尽管风险依然存在,有希望的理由t inflation will dissipate in time to avoid more substantial declines in consumer spending: Oil prices have already fallen from March peaks, rising interest rates are helping to cool the housing market and the shift in spending from goods to services is helping to ease supply chain bottlenecks.