Consumers Likely to Tighten Their Discretionary Spending Following Rate Hike

Home furnishing retail has been one of the big sector winners for retail, but today’s housing market inactivity “reverberates to select retail segments and higher mortgage rates, still-elevated home prices and a lack of incentive to relocate will stall single-family housing mobility in 2023,” according to a report by Marcus & Millichap. As a result, “the demand for home furnishings could be diminished.”

Now, as interest rates continue to rise, consumers will continue to clamp down on their discretionary spending, which will affect other sectors of retail.

Retail recovered admirably from the pandemic but it now must brace for a consumer retrenchment in spending.

More individuals are using credit cards for purchases, according to the 2023 Retail Investment Forecast report from Marcus & Millichap. Paired with higher interest rates, the report said that the US households’ credit card debt will increase “beyond the already high mark reached last year.”

In the meantime, consumers are facing higher prices across nearly every category, including necessities like food, energy, and housing.

Prices Rising Faster Than Fed Would Prefer

Prices are still going up faster than the typical annual pace and the Federal Reserve’s target range, Marcus & Millichap reported.

“These factors, coupled with a period of elevated debt service costs, will dampen GDP growth and consumer spending in 2023,” the report said.

Throw in the rising number of layoffs and “a notable slowdown in job creation” and discretionary purchasing is expected to be reduced.

Workers facing reductions and stalled career advancement leave individuals being more selective with their consumption habits and avoiding unnecessary purchases – a direct hit on retail spending.