US discretionary spend set to bounce back in 2023

The amount of money US households have to spend on discretionary items will increase next year following a decline in 2022, according to estimates from Goldman Sachs, the financial services giant.

Why it matters

Inflation is currently eating into household budgets, forcing marketers to respond in various ways, be it adapting promotional strategies or refining their value propositions. But scenario planning remains a critical task, as any improvement in the financial situation may cause shoppers to begin spending more heavily again in a short space of time.

The outlook for 2022

• Jason English, a consumer goods analyst at Goldman Sachs, recently outlined its view on disposable income, or the funds a household has available to spend once expenses are paid.
• In 2022, that total is set to fall by some 4.2%, or around $600 per household, on an annual basis – a trend not witnessed for over a decade.
  
• “This year, we’re looking at negative discretionary cash flow for the first time since the 2008/09 financial crisis,” English said, as reported by CNBC.

A gradual improvement over time

• Based on Goldman Sachs’ analysis, English argued the slide in discretionary resources should moderate as this year goes on.
• Household discretionary funds contracted by 10% in the first quarter of 2022 versus a year earlier. In the second quarter, that total stood at a comparatively modest 2.7%.
• For the holiday season, it is predicted that the annual dip in discretionary funds will be just 1.2%.

New year, new optimism

• In the opening three months of 2023, Goldman Sachs anticipates that households will have 2% more to spend on discretionary items than was the case 12 months earlier.
• For the second half of next year, that figure is expected to top 6%, representing around $600bn in dollar terms nationwide.
• A robust situation for wages and slowing inflation are likely to be the main drivers of this trend.

Sourced from CNBC