2024 US retail industry outlook | Looking for loyalty in all the right places
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Introduction
The last two years have been anything but ordinary. Consumers
witnessed a 40-year inationary high in June 2022 and 11 Federal
Reserve rate hikes by July 2023. Given this volatility, it’s reasonable
to assume that consumers’ collective psyche would be bruised
and they would retreat from the marketplace.
However, consumers have endured, surprising analysts by
challenging conventional wisdom. In fact, consumers continue their
consumption binge, with some beneting from wage increases while
others are presumably burning through savings and accumulating
debt even as economic uncertainty continues to loom. Will 2024
nally signal the end of this spending spree?
Expert opinions vary. Economists are encouraged that moderating
ination and a tight job market will support current consumption
rates, though those rates may slow down (see below for more
about our economic forecast). But retailers and Wall Street analysts
remain uncertain that debt-loaded consumers facing a cost-of-living
squeeze can maintain their recent spending trends, especially on
discretionary goods.
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One thing is certain: Ination has left its mark.
Despite ination approaching the Federal Reserve’s target rate of 2%
in the last six months, three in four consumers remain concerned
about rising prices.
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With this ination mentality locked in, consumer
behavior has been confounding—even for seasoned retailers
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as consumers consider trade-os, try out the competition, and
hunt for the best deals.
As retailers face an uncertain 2024 economic outlook, focusing
on trust could lead to protable loyalty.
US Economic Forecast
[i]
A note from Deloitte US Economists Danny Bachman and Akrur Barua:
The US economy seems to have avoided a recession even as ination has dropped. This is good news, especially at
a time when geopolitical tensions are rising, growth in key US economic partners is slowing, and there is uncertainty
over budget funding.
Consumers have benetted from rising wages due to a strong labor market and declining ination. They have also drawn
down their pandemic-era savings to fund more purchases. This dip in personal savings, however, will weigh on consumer
spending in 2024–2025. In addition, consumers face headwinds from high rents, rising house prices, and repayment of
student loan debt.
Two key trends will shape the future business environment: tighter labor markets and higher long-term interest rates.
First, slow labor force growth and continued high demand require companies to oer higher wages to lower-skilled workers
and to be more imaginative about hiring.
Second, long-term interest rates are unlikely to return to the lows of the late 2010s. The slowing of China’s
savings growth, a need for large investments (public or private) to address climate change, and eorts to
build supply chain resiliency will likely keep capital demands strong.
Deloitte’s baseline forecast anticipates continued growth in consumer spending at a rate slightly below
GDP growth (gure 1 in the appendix) due to falling ination, low unemployment, and increasing
productivity growth. The aftermath of the pandemic led to a shift in consumer spending patterns,
with the dollar value of durable goods increasing 43% vs. a 24% rise in spending on services since
Q4 2019. This is unlikely to continue, with the forecast suggesting a slower growth trajectory for
durables spending relative to consumption and income over the next ve years.
