Podcast Summary: Thoughts on the Market – “Trends and Challenges for Consumers in 2026”

Host: Morgan Stanley
Date: December 4, 2025
Episode Theme: Outlook on the K economy, consumer health, and spending trends heading into 2026, with analysis from Morgan Stanley experts during the Global Consumer and Retail Conference in NYC.

Main Theme and Purpose

This episode examines the evolving health of the US consumer as the economy heads into 2026. Experts from Morgan Stanley discuss macroeconomic factors, the persistent effects of the "K economy" (disparate outcomes by income level), the impact of ongoing inflation, holiday retail performance, and how anticipated changes in Fed policy may influence various consumer segments, particularly the middle and lower income cohorts.

Key Discussion Points & Insights

1. The State of the Consumer

Contributors: Host (A) and Arunima Masinha, Global and US Economics Team (B)

• Real Spending Trends:
  • Spending growth on a real basis held up through 2025, with Q3 tracking 3% quarter-on-quarter (01:20).
  • This is slower than 2024, when growth was between 3.9–4%.
• Divergence by Income:
  • “For the upper income cohorts those net wealth effects have been very, very supportive. $50 trillion in net wealth that’s been created just over the last three years.” (B, 02:36)
  • Labor market slowdown and inflation are stalling or reducing real wage growth, disproportionately affecting lower and middle income households.
• Forecast for Q4 2025 and Q1 2026:
  • Spending growth expected to slow to about 1% in real terms (versus 3% in previous quarters).
  • Q4 disposable income also anticipated to be weak.

2. The “K Economy” – Expectations for High vs. Low Income Consumers

Contributor: Arunima Masinha (B)

• Potential for Growth Broadening:
  • Modest uptick in consumer growth expected to start in Q2 2026, rising from under 1% to 2% by year’s end (04:18).
  • Growth boost for middle income likely comes from:
    • “Less policy uncertainty, some boost from the fiscal bill, and the fact that monetary policy is heading toward neutral.” (B, 04:48)
  • Upper income segment remains steady, without a forecast for significant acceleration.
  • Diminishing tariff-driven inflation pressures expected after Q1 2026.

3. Holiday Shopping Season and Retail Trends

Contributors: Simeon Gutman, US Hardlines/Broadlines and Food Retail Analyst (C), and Megan Clapp, US Food Producers and Leisure Analyst (D)

• Overall Holiday Sales:
  • “Mixed to maybe slightly a little worse” than expected, especially prior to counting Cyber Monday figures (C, 06:10).
  • Softline retailers could be faring better. Largest companies show relatively stable trends.
  • “One of the ongoing themes across the entire retail landscape has been this big getting bigger... the narrowing funnel of market share.” (C, 06:55)
• Brand and Channel Insights:
  • Companies such as Mattel and Shark Ninja reported “in line” performance for Black Friday, with no downward guidance changes and continued positive replenishment orders (D, 07:54–08:44).
  • “The higher end consumer continues to spend and outperform. Value and innovation continue to be things that consumers are looking for. Online seemed to do better than in stores.” (D, 08:48)
  • Emerging sales channels like TikTok Shop are driving growth for some brands.

4. Federal Reserve Policy & Its Effects on Consumer Recovery

Contributor: Arunima Masinha (B)

• Path to Monetary Neutrality:
  • “We still have the Fed on an easing path into the first half of 2026,” with 75 basis points in additional policy cuts forecast. Monetary policy will move to neutral rather than being outright stimulative (B, 09:25).
• Impact on Key Segments:
  • Interest-sensitive sectors (housing, durables) are expected to benefit most, particularly with mortgage rates possibly dipping below 6%.
  • Middle income families could see some relief in affordability from lower rates, but affordability challenges are likely to persist.

Notable Quotes and Memorable Moments

• Arunima Masinha on Upper Income Wealth:

  • “For the upper income cohorts those net wealth effects have been very, very supportive. $50 trillion in net wealth that’s been created just over the last three years.” (02:36)

• Simeon Gutman on Retail Market Share:

  • “One of the ongoing themes across the entire retail landscape has been this big getting bigger... the narrowing funnel of market share. So the in-line updates are probably coming from some of the largest companies.” (06:55)

• Megan Clapp on Consumer Segmentation:

  • “The higher end consumer continues to spend and outperform. Value and innovation continue to be things that consumers are looking for. Online seemed to do better than in stores.” (08:48)

• Arunima Masinha on Fed Policy Outlook:

  • “It’s not that monetary policy is becoming easier, it is simply just getting to neutral.” (09:29)

Timestamps for Important Segments

• State of the Consumer & Spending Growth: 01:20–03:56
• K Economy and Income Cohort Outlooks: 03:56–05:52
• Holiday Retail Insights: 05:52–09:11
• Fed Policy and Future Recovery: 09:11–10:40

Tone and Style

• The conversation is analytical yet accessible, focusing on data-driven expectations and emergent industry anecdotes.
• Experts use clear, direct language to explain complex market dynamics, with an emphasis on practical implications for different consumer groups.

Summary

This episode provides a cautious but measured outlook on US consumer trends heading into 2026. While upper income households remain insulated by wealth gains, middle and lower income segments are more exposed to inflation and softening labor markets. Holiday retail is largely “in line” but competitive dynamics favor dominant firms and innovative channels. The expectation is that, with a shift to more neutral monetary policy and less policy uncertainty, consumption growth may broaden in 2026—especially if inflationary and affordability pressures abate.

Best For: Professionals tracking macroeconomic trends, consumer analysts, and anyone watching the evolving impact of policy and market conditions on US household spending.