There’s A Recession, But Not In My Backyard
Baffled by what you hear about the economic environment? Struggling to make sense of conflicting points of view? You’re not the only one. We’ve been wading in a sea of contradictions for some time now, trying to balance consumer perceptions that say one thing with macroeconomic data that says another. I can’t promise to clear it all up for you, but here’s our take on what we see in the market.
A Sea Of Contradictions
A vast majority of Americans believe they are mired in a recession. And that makes them very anxious: Forrester’s December 2022 Consumer Energy Index And Retail Pulse Survey shows that 77% are worried about growing inflation and rising prices, and 68% are worried about the general state of the economy. Yet macroeconomic data tells a very different tale from the narrative that consumers are voicing. The economy is strong — US GDP growth, 2.9% in Q4 2022, has been described as “solid.” Inflation is cooling off. And all the press about the highly visible tech layoffs may distract you from the fact that unemployment hit a 53-year low in January.
There’s A Recession, But Not In My Backyard
Consumers may tell you we are in a recession, but they sure aren’t letting that deter their spending. Most have come into this downturn with a hefty war chest built on historically high pandemic savings rates, stimulus funds, and (especially for the higher-income groups) increased equity and real estate wealth. Even when funds may be tight, consumers are dipping into their credit card cookie jars (for Gen Z, that would be the “buy now, pay later” treasure trove). Despite their anxiety, most consumers are far from impoverished, and their shopping behavior and spending patterns reflect it. Personal consumption expenditures (in real terms, factoring out the effects of price increases) grew every month of 2022 (versus the same month of 2021, using data until September). What makes this alleged recession extremely unusual is that the patterns of perception diverge from the patterns of behavior.
Less Is More If It Is Better
Downturns send consumers scurrying to dollar stores and warehouse stores and have them reaching for the private-label shelves in the grocery store. And while some customers have certainly done that, Forrester’s December 2022 Consumer Energy Index And Retail Pulse Survey shows a unique emerging preference among consumers: They will make do with less as long as it is better. When asked how higher prices had impacted their household spending, 20% of consumers said they bought more private labels, and 19% said they shopped more at dollar stores. But 35% opted to buy fewer products, and 39% looked for more deals than usual. Consumers are less willing to trade down their products (to private label) and experiences (to dollar stores); they’ll settle for less, but at least it’ll be the good stuff they know and love.
Consumers Seek Comfort And Community
The US Bureau Of Economic Analysis releases category-level spending data that sheds unique insight into how people are spending during this downturn. The data shows that the gloom of economic unease, even if it is more perceived than real, is leading people to a place that is familiar, comfortable, and communal:
- Spending on toys, games, and hobbies has grown steadily for most of 2022 as consumers look for comfort and familiarity.
- Those emerging from the isolation of the pandemic and in search of community are flocking to amusement parks, movie theaters, and spectator sports, and these categories have enjoyed astronomical growth. And those with a penchant for culture and learning are spending as much as 20% more on museums and libraries.
- Alcohol has always been an incredibly resilient, if not countercyclical, category. Alcohol purchase for consumption off-premises has increased modestly, but we sure are spending a lot more on booze when we go out to eat — the perfect occasion for blending comfort, community, and a little something to take the edge off.
Forrester clients, these are confusing times to navigate, and we have several resources to help you do just that:
Navigating The 2023 Downturn: B2C Marketing Executives
Manage Growth In An Economic Downturn
Please request a guidance session if you have questions about this research or want to discuss how you can create better brand experiences in this very unique consumer environment.