As inflation and fears of recession dissipate, consumers will be ready to spend
“First, real disposable income looks set to reaccelerate in 2024 on the back of continued solid job growth and rising real wages,” Jan Hatzius, chief economist at Goldman Sachs, wrote in a research note while downgrading the firm’s recession prediction to a 15% chance. “Second, we still strongly disagree with the notion that a growing drag from the ‘long and variable lags’ of monetary policy will push the economy toward recession.”
With markets worldwide showing strength and consumer confidence beginning to follow suit, analysts at Mintel say it’s time to prepare for prosperity.
“Winning brands are the ones who get the balance right between meeting what consumers want currently, while simultaneously doing the work in the background on innovation – so they’re ready to pivot seamlessly when consumers are confident enough to loosen the purse strings again,” Toby Clark, director of EMEA Research at Mintel, said. “Brands that get this balance wrong risk losing out to rivals who are better positioned to tap into improving consumer mindset.”
As the general public attitude toward the economy shifts and people feel more confident in their financial security, the types of products they’ll buy will change. Consumers will be more willing to spend on those nice-to-haves that they considered a luxury in less certain times.
“As confidence returns and people feel more secure, the upgrade cycle will start to pick up speed,” Mintel says. “Essential, but unglamorous, products like domestic appliances including refrigerators or washing machines, tend to be the first hit when budgets are under pressure. However, they’re also the first to benefit when consumer spending starts to recover.”
Buyers will be more open to those big ticket purchases and more frivolous spending on goods with more bells and whistles than they would in tighter times.
One sector where recession fears did not spark a slowdown is travel, and other industries can take lessons from its boom. After two years of intense Covid restrictions, travelers went anywhere and everywhere in 2022, spending lavishly on what came to be termed “revenge travel.” There were certainly making up for lost time, and have only continued to do so this year, when international travel is up significantly over 2022 figures.
People like the freedom of buying something without having to worry too much about the cost. They like treating themselves or loved ones just because. As wage growth begins to outpace inflation, people will feel like they have some extra money in their pocket and want to buy the latest new thing. Mintel estimates it takes about six months for GDP changes to feed into consumer confidence levels, so brands have a little time to prepare for prosperity, readying new products to come to market.
When times are good, people feel more comfortable showing off a bit. They’ll buy the newest thing and let their friends know all about it. As Mintel puts it, “During tough times, conspicuous consumption looks crass. However, when spirits lift there’s much more room for frivolity.”
They go out more, and they spend more when they do go out. That stands in stark contrast to less prosperous times, when price becomes the top priority for most consumers.
“When money’s tight people look for efficacy and value first,” Mintel says.
In harder times, people are just looking to make sure the family is fed. When times are better, they’re more willing and able to splurge on dinners out and celebrations.
They also put personal values back into their purchases, spending more on products that are sustainable or with brands that make social responsibility a focus of theirs.
“Value and functionality will always be at the core of a product’s appeal, but when people are feeling better off they’re more likely to be prepared to pay a little more for products and experiences that they believe will have a positive social impact, and support the causes they care about most,” Mintel says.
Brands and consumers alike have been uneasily waiting for the other shoe to drop on recession fears for over a year now. But as more time passes, things keep looking up and it seems we are just about out of the woods. It’s time to prepare for prosperity when we all step out into the clearing.