Consumer Trends: What to Expect in 2024—Insights from a CED Trustee Roundtable

Trusted Insights for What’s Ahead™

The Committee for Economic Development, the public policy center of The Conference Board (CED), convened a CEO Trustee roundtable, February 26, 2024, to discuss consumer trends and preferences and what they portend for our consumer-based economy in 2024. The discussion, which started with a broad overview of consumer preferences and changing trends during and after the pandemic, included deeper assessments from various sector perspectives on what trends were unfolding in 2024. The roundtable was held under Chatham House rule. Following are key insights.

Overview on Spending Trends

• In a strong labor market, increasing wages and higher purchasing power allow for higher spending; at the same time, the use of credit has been increasing, leading to a rise in personal debt.
• The psychology of the consumer has changed since the pandemic. Seeing the pandemic, wars, and geopolitical tensions, the consumer is upset by uncertainty and tends to “live today and spend today” – a trend especially true for the younger generation.
• People will continue to spend on things they really enjoy, while cutting back in other categories. People are seeking out experiences.
• Expenses on essentials have been rising rapidly. As food costs rise, consumers are trying to reduce costs by seeking out deals, shopping at bargain retailers, or buying smaller package sizes. Similarly, shopping at secondhand stores has lost its stigma, as people are thinking more frugally and trying to reduce waste.
• This environment offers many opportunities for companies. Companies should also consider communicating price increases transparently, as consumers appreciate transparency and honesty regarding pricing. Open communication helps brand reputation.
• Some companies are offering social meetups, such as running groups, to bring people together to socialize and spark new connections in a way that is associated with their brand – bringing people together becomes part of the brand.
• Increased purchases in health and wellness and small indulgences (such as ice cream) are a lasting trend from the pandemic.
  Consumers appreciate sustainability; however, it is not generally the key factor driving a purchase, as the premium price of sustainable products can be up to 30% higher in consumer-packaged goods. Instead, if all other factors (including price and quality) are the same, then people prefer the more sustainable product.
• Social indicators on products have become increasingly prominent – consumers feel good about spending with companies with good working conditions and equitable pay. People are very worried about climate change, but they do not know how they can mitigate it. This suggests a role for employers to serve as a good role model, to explain the issue, and to educate employees and customers.

A Deeper Dive into Consumer Preferences and Trends

• Higher consumer spending reflects not only higher government spending in response to the pandemic but increases in wealth from higher global asset prices, benefiting many consumers.
• A major correction in asset pricing would highlight the fragility of the situation, and a number of geopolitical risks could impact consumption.
• Demand for housing remains strong despite high interest rates, with a rebound in residential construction as housing values appreciate. Many consumers who own homes were able to refinance at a lower rate. However, they are reluctant to trade out for a high interest rate, leading to stickiness in the resale market -- and causing a boom in new construction.
• This year is likely to see slower wage growth, with modest increases instead of 5-7% last year.
• There is record low job turnover – about 10% compared to 30% during the pandemic, and people are staying in jobs longer – what one might term the “Great Hesitation.”
• Real wages have risen for jobs at all skills levels, causing people to remain in their jobs.

The Consumer Shift to Services and Experiences

• There has been an enormous shift in consumer preferences, starting even before the pandemic. During the pandemic, spending on goods rose while that on services fell. Now, there is a large shift to discretionary services, and people are seeking out experiences.
• As smaller companies struggle, the consolidation of retail continues, and very large retailers, both physical and online, are seeing strong results.
• Inflation is real and caused a downshift to lower-priced products. But consumers are not stopping spending; the question is where consumers are spending money.
• Branded companies are struggling with competition from China and other cheap online sources and as consumers focus on star ratings rather than brand names. In this environment, companies need to show they are a brand with purpose and authenticity, showing what makes their brand different, becoming involved in communities, and showing high value to consumers.
• Still, some consumers are under pressure from debt. The middle three income quintiles are accruing more debt but being cautious; members of this group want to spend on experiences – eating out, vacations, self-care, health.
• Spending on children and pets has risen; there is a focus on having fun. It is a good time to be in a business that offers people experience and helps them to have a good experience.
• Younger consumers would rather save money by living with their parents than forgo the opportunity to travel and have new experiences.

The Impact of Inflation and Consumer Reliance on Credit

• Banks’ deposit balances have fallen about 14% from their peak but still remain high compared to historic levels.
• Debt servicing costs for consumers peaked in 2010, fell, and have remained relatively stable as many consumers have rolled other debts into their real estate loan. Real disposable income has also grown substantially, but debt has also risen.
• However, on the credit side, loan delinquency rates are rising, heading back towards normal levels from abnormally low levels but remaining well below historic averages.
• While no individual point on possible weakening of the consumer market is particularly concerning, considering all the points together suggests there is more stress on the consumer than may appear from the data.
• So long as consumers believe their jobs are safe, so long as they can make regular monthly payments easily, they will continue to spend and borrow. But if there is any significant reduction in employment levels, the consumer spending currently buoying the economy would dissipate quickly with a major change in the labor market. 2024 is likely to be a year of moderation. While spending patterns should be normal all year, it will be important to pay attention to jobs and employment numbers to determine if trends will shift.