OK, I’ll (Still) Buy It: The Resilient Q1 Consumer

by Corinne Casagrande

Analysts keep expecting consumers to pull back on spending, but consumers still haven’t gotten the memo. As Q1 reporting came in last week, it was clear analysts tempered their expectations and earnings looked better by comparison across multiple industries.

In Q1 2023, consumer spending rose 3.7%, the most in almost two years. Thursday’s report from the Commerce Department showed that consumer spending grew significantly more than the fourth quarter’s 1% annual rate.

Consumers are buoyed by a strong job market and bigger paychecks. Labor force participation keeps ticking up month over month, with March punching in at 62.6%. Higher wages and immigration rebounding helps; the participation rate among prime-age workers (25 to 54) reached the pre-pandemic level. We’re back to work and getting paid.

Where are consumers still spending?

In March, shoppers spent quite a bit online, at least 12% more than last year.  Jewelry and clothing sales in particular climbed year over year, and people went out in their new outfits; spending in restaurants and bars was up 13% from a year ago, per the Commerce Department.

A peek into Bank of America credit card statements shows that air travel was up in March, perhaps an indicator of summer plans. Despite last year’s spike in spending on services and “revenge travel,” consumers may still not have had their fill of revenge. Like the Count of Monte Cristo, consumers may not be satisfied with just one swim to an island off the coast of Marseille. Both American and Southwest Airlines are projecting a strong summer.

Where are consumers pulling back?

Consumers are stating that they plan to spend less.  Deloitte’s State of Consumer Tracker has them intending to spend 15% less over the next four weeks.  But as market researchers know, taking consumers at their word can be misleading. While they may be pulling back slightly on big-ticket purchases like vehicles and home improvement in March, they’re still spending more on goods and services relative to last quarter.

When will the talked-about recession finally hit?  Probably not this quarter. For now, consumers have planes to catch.