Study: Consumers Skittish on Spending in 2023

While retail’s share of the consumer’s wallet has reverted back to pre-pandemic levels — with 2022 consumer retail spending increasing 22% over 2019 — personal savings rates have continued to decline. Strong labor markets and a growth in wages have helped consumers maintain spending on discretionary items until now, but a new study released by the National Retail Federation and Affinity Solutions paints a less optimistic picture of the year ahead.

In an effort to better understand consumer spending patterns and identify which signals they send for 2023, the NRF and Affinity recently conducted a study relying heavily on Affinity’s access to data from 100 million credit and debit card transactions sourced from more than 3,000 financial institutions. The study found that as consumers returned to traveling and dining out in 2022, retail’s share of wallet dropped back to pre-pandemic levels.

There is some good news for retail, though. Affinity’s survey found that while share of wallet returned to pre-pandemic level in 2022, consumer spending increased significantly across all income groups, and for both goods and services, compared with 2019. Even taking into account gas, which is tied to inflation, consumer retail spending still increased 22% in 2022 over 2019.

“As we braced for an economic downturn and recession, it was surprising to see that consumers still had heavy retail spending habits,” says Damian Garbaccio, chief business and marketing officer at Affinity Solutions. “While retail’s share of wallet has spiked over the last few years, it has started to settle back down to pre-pandemic levels as consumer spend against categories such as gas and travel increase. However, that share shift hasn’t taken away from overall retail spending because the size of the consumer wallet has increased so dramatically.”

Although it could be expected that consumers would shift their spending back into services and experiences, and away from goods, as life returns to a new normal, Affinity’s survey uncovered some less expected insights, as well. For example, a credit and debit card analysis found that post-pandemic, consumers continued spending more, not only on goods, but also on all other aspects of their lives, including dining out, gas, retail, and travel. Spending on those combined categories increased almost 20% in 2022 over 2019.

“Many consumers have excess savings, and recent data suggests they are willing to dig into this pile of cash to keep their spending at reasonable levels,” Garbaccio says.

Looking forward into 2023, Garbaccio says it’s important for retailers to note that the correlation between changes in consumer sentiment and real consumer spending is low, and he cautions that this correlation shouldn’t be used to paint a broad-brush future picture.

“With inflation raging for a year and a half, consumers are skittish,” Garbaccio says. “This does not equate to an all or nothing scenario particularly because there will need to be a readjustment period where economic conditions stabilize for consumer confidence to really reinvigorate itself and begin to rise again to pre-pandemic levels in 2023.”

In the meantime, the data makes it clear that significant economic uncertainty exists for 2023, especially for lower-income households. While the economy began to cool at the end of 2022, and sectors of the economy that are particularly sensitive to rising interest rates have seen a significant pullback this year, data also shows that consumer spending overall remains at an elevated level.

Inflation has eased in recent weeks, however the share of goods in household spending is still above the pre-pandemic norm. Prices for a typical basket of consumer goods are still rising at a historically rapid pace, even as increasing interest rates are weighing on many sectors of the economy.

“This shift in spending to services from goods will likely continue in early 2023,” Garbaccio says, “leading some to believe the current state is temporary, and largely driven by sustained fears of inflation and Fed rate hikes.”