Is The Consumer Breaking Records This Holiday... Or Is Spending Disappointing? Here Is The Bottom Line

By Jenna Gianelli, head of Retail/Consumer Credit at Morgan Stanley

Is the US consumer breaking records this holiday? Or is spending disappointing? The media is offering simple narratives around this debate but, like most things in life, it's complicated. The signal through the noise, in our view, is that the US consumer remains resilient, but cautious and choosy, and with divergent trends beneath the surface regarding consumer categories and shopping channels. Taken together, this syncs with some of our core views for 2024: our economists’ expectations for the US to avoid recession, but with cooling growth over the course of 1H24, setting up policy rate cuts; and our strategists’ expectation of better total returns for high grade bonds as Treasury yields drift lower in sympathy with macro trends.

Let’s focus on the US consumer for the moment. There’s still spending momentum, but growing headwinds appear to be pushing them to tighten their holiday shopping belts this year, leading to reduced foot traffic discount hunting. And there’s a broader story about US consumption when you widen the lens to include more types and styles of consumption. Consider: