Amid Rising Inflation and Slowing Growth, How is the U.S. Consumer Faring?

Episode Summary

Executive Summary: Goldman Sachs economists and retail/internet analysts describe a U.S. consumer that is still spending, but at a slower, healthier pace after pandemic-era surges. Demand is shifting from goods to services, big-ticket purchases are weakening, and spending is increasingly influenced by inflation, wealth effects, and credit access. Retail and e-commerce are normalizing, with more promotions likely into holiday 2022 and a modest-growth 2023 outlook.

Main Topics: Consumer slowdown without contraction (Priority: 5/5): David Miracle argues spending has decelerated sharply from 2021’s boom but remains positive, which is consistent with the Fed’s goal of cooling demand enough to reduce inflation without triggering recession. Ability to spend vs willingness to spend (Priority: 5/5): The discussion separates consumer demand into psychological willingness and financial ability. Pandemic reopening lifted willingness to spend on services, while fiscal transfers faded and inflation pressured real disposable income; wealth gains then partially offset that, but are now reversing. Retail category divergence (Priority: 5/5): Kate McShane notes spending remains strong in essential or priority areas like groceries, home improvement, sporting goods, and auto parts, while big-ticket and infrequent purchases such as electronics and home furnishings are weakening. E-commerce normalization and omnichannel evolution (Priority: 4/5): Eric Sheridan explains that online shopping is normalizing after a pandemic pull-forward, though e-commerce still holds elevated share gains. Retailers are also using stores more effectively for fulfillment, click-and-collect, and local delivery. Holiday inventory, promotions, and supply chain easing (Priority: 4/5): Retailers entered holiday 2022 heavily stocked to avoid last year’s shortages, which should improve availability but also increase promotional pressure if consumer demand softens. Supply chains are expected to improve in 2023 as inventory chasing subsides. 2023 outlook: modest growth and lower volatility (Priority: 5/5): The panel expects roughly 1% consumer growth next year, with income gains likely offsetting negative wealth effects. They see a lower-growth but stable environment, rather than recession, assuming inflation cools and the Fed can ease its tightening path. Amazon and internet-sector investment dynamics (Priority: 3/5): Amazon is highlighted as the strongest secular e-commerce story, but growth investors are sensitive to slowing top-line growth and rising capex. The key question is how Amazon competes for everyday wallet-share categories against brick-and-mortar retailers.

Key Arguments: Consumers are not collapsing; spending is slowing from unsustainably high levels toward a healthier pace aligned with inflation-fighting policy. The consumer’s spending power is determined by both real income and wealth; fiscal support has faded, but labor income is improving. Rising interest rates and falling asset prices are creating negative wealth effects, though debt burdens are still manageable. Consumers continue to prioritize essentials, home-related spending, and health/wellness, while delaying big-ticket and infrequent purchases. E-commerce growth is normalizing after a pandemic pull-forward, but omnichannel retail behavior is now structurally more integrated than before. Holiday 2022 should have better in-stock conditions, but retailers may need to rely more on promotions if demand weakens. The biggest 2023 risk for internet and retail companies is not just demand softness, but lower visibility and higher investment needs. Amazon’s long-term growth depends increasingly on winning larger wallet-share categories beyond traditional electronics and media.

Data Points: Consumer spending growth in 2021: about 7% - Blowout consumption growth during the pandemic recovery Consumer spending growth in first three quarters of 2022: about 1.5% annualized - David Miracle’s estimate of the slowdown Pandemic e-commerce penetration gains: about 2.5 years in 9 months - Eric Sheridan describing the pull-forward in online shopping Amazon growth in first half of 2022: roughly 0% to 1% - Normalization period with tough comps Amazon growth on a two-year or three-year stack: mid-teens / high single digits - Adjusted for normalization and easier comps Retailers’ expected e-commerce share gain: about 200 basis points - Eric on e-commerce taking share from offline retail Amazon Prime households: north of 90 million households - Scale of subscription base discussed by Eric Prime households added in September after Thursday Night Football launch: most ever in a month; likely 5 million+ households - Eric referencing Amazon’s earnings commentary and media content tie-in Historic household wealth-to-disposable-income ratio: historic high during the pandemic - David on peak wealth support to consumption Auto parts retail: one of the most defensive areas - Kate on persistent demand due to aging vehicle fleet Policy target for consumption/GDP growth: roughly 1% - David’s view of the “ideal” slowdown to fight inflation without recession

Pivotal Quotes: "I think consumers are doing fine." — David Miracle: Opening assessment of the consumer’s health despite slower spending "The main theme that cuts through all the answers so far is the word normalization." — Eric Sheridan: Describing the post-pandemic shift in e-commerce and consumer behavior "The consumer loves optionality." — Kate McShane: Explaining why omnichannel, click-and-collect, and delivery-from-store behaviors are sticking

Implications: Expect a slower but still positive consumer backdrop in 2023, with more promotions, better inventory, and continued omnichannel adoption. Retail winners will be those balancing price, convenience, and fulfillment while avoiding overinvestment in a lower-growth market.