Transcript
A (0:00)
Welcome to Thoughts on the Market. I'm Michelle Weaver, Morgan Stanley's US Thematic and Equity Strategist. Today we're bringing you an update on the US Consumer as we try and understand the outlook for the economy. It's Thursday, April 9th at 10am in New York. You've probably noticed shopping these days feels like a mixed bag. You spend money on your everyday staples like groceries, personal care or clothes. But you might be second guessing those big ticket items like a new piece of furniture or a new TV. And you're not alone. Our newest AlphaWise survey of US consumers reveals a pretty mixed signal. On the surface, things look solid. Consumers are still spending. We've seen that borne out in some of the recent economic data. And our survey work reveals around 34% expect to spend more next month, compared to just 15% who expect to spend less. This leaves us with a net spending outlook of positive 18%, which is actually above the long term average. But when we start to dig in and look beneath the surface, the story shifts. Confidence is deteriorating. Nearly half of consumers expect the economy to get worse over the next six months, while only 32% expect an improvement. This results in a net outlook of -17%, a meaningful drop from what we saw last month. So how do we reconcile that that spending with that deterioration in confidence? It's really a balance of timelines. Consumers are spending today, but they're increasingly worried about tomorrow. And these worries are grounded in very real concerns. Inflation remains the dominant issue, with 57% of consumers citing rising prices as a key concern, reversing what had been a fairly short lived improvement on consumers view on prices. At the same time, of course, with the tensions in the Middle east, geopolitical concerns are increasing quickly. They've jumped to 33% from just 22% last month. And concerns around the U.S. political environment remain elevated at 43%. When you combine all these pressures, it's not surprising that consumers are becoming more cautious in how they plan to spend. We're also seeing that caution show up in the mix of expenditures. In the near term, consumers are still increasing spending across most categories, especially the essentials like groceries, gasoline and household items. But when we look over a longer horizon, the outlook becomes more selective. Discretionary categories are weakening. Apparel spending expectations have dropped to minus 16%, domestic travel to minus 11% and international travel to minus 14%. That shift from discretionary to essentials is something we tend to see when consumers are bracing for a more uncertain environment. Now, one factor that's supporting the near term, a brighter spot here is tax season. This year, 46% of consumers expect to receive a larger tax refund compared to last year. And what's interesting about that is where people are going to put the money. About half of consumers plan to save at least a portion of their refund, about a third plan to pay down debt, and only around 30% intend to spend it on everyday purchases. So even when people receive a cash boost, the instinct isn't to spend freely, it's to shore up finances. Putting this all together, the picture for the US Consumer today is one of resilience but also rising caution. Spending is holding up in the near term, supported by income and tax refunds, but confidence is weakening, savings behavior is increasing, and discretionary demand is softening. These divergent trends are important. We'll continue to watch them closely and bring you updates. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share thoughts on the market with a friend or colleague today.