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By Jason Bornstein, Principal at Forerunner

@jasondbornstein

Hi everyone, Jason here. Last week, the WSJ published an article with a strikingly bold headline about where consumers are at in today’s economy — they’re “freaking out.” The article sparked debate internally — “would we go as far to say the consumer is in freak out mode?”

We know that downturns undoubtedly impact consumer spending, but we also know it’s usually not spending pullbacks across the board – there’s the staples and discretionary sides of the ledger, and a layer deeper there’s a desire to find small indulgences within both. For example — the Lipstick Effect, a term famously dubbed by Estée Lauder in the 2001 economic bust, connotes that people are more likely to indulge in affordable personal luxuries while cutting back on larger expenses during times of financial strain. According to recent data, this effect still prevails today: lipstick sales were up 37% in October 2022 compared to last year, and Target, Macy’s and Kohl's all show pointed growth in beauty sales. Additionally, consumers were shockingly active for Black Friday in 2022 across nearly every category of e-commerce, outpacing years past — and all amid a time when interest rates climbed.

So does “freaking out” capture the full picture?

First, it’s important to consider what the data tells us — and the WSJ piece includes some compelling macro points about the consumer and the broader economy, as of January 2023:

Spend:

Retail purchases have fallen in three of the past four months, down 0.2%.
Spending on services, including rent, haircuts and the bulk of bills, was flat in December.
Through most of 2022, consumer spending growth exceeded price increases by about 2 percentage points.
The share of monthly income Americans set aside for savings was 3.4% in December, down from 7.5% a year earlier and from a record high in April 2020.
Consumer spending currently accounts for roughly 70% of the economy.

Labor:

Unemployment was a low 3.5% in December. Hourly wages were up a robust 4.6% year-over-year. There were about 10.5 million unfilled jobs available in November, according to the Labor Department, a sign that demand for labor remained strong. Read: don’t let the tsunami of tech layoffs fool you — the broader labor market is actually holding quite strong.
Still, there are signs of labor-market weakness. Employers are cutting temporary workers at a faster rate, and meanwhile, the number of hours worked a week has declined for two straight months, according to the Labor Department, resulting in a slowdown in workers’ take-home pay.
Additionally, people who lose their jobs are taking longer to find new ones — which could be a reflection of the kinds of jobs available right now, or a signal of how consumers have become increasingly discerning with how they want to invest their time as a professional.
Inbound volumes at the ports of Los Angeles and Long Beach in California were down 20.1% in December from a year earlier, and have been behind 2019 levels since August.

No doubt, the data shows some consumer-driven economic challenges. But in light of the magnitude of the economic headwinds facing consumers right now (historic inflation! interest rates! rising unemployment!), these shifts are relatively mild — and show an evolving consumer more than one that’s freaking out.

We see the consumer shifting toward a more pragmatic mindset. The WSJ coverage of the “decline of the nice-to-have economy” lands as more appropriate and realistic – consumers are trading pricey 15-minute delivery, meal kits, and expensive at-home fitness offerings for more pointed investments in life staples, which today account for higher share of wallet given inflation-elevated prices. Also noteworthy is that the Fed now separates goods and services inflation data, because while inflation for goods continues to trend down, inflation for services remains elevated and flat, further explaining where consumers are feeling stretched and having to make trade-offs.

We recently ran a survey through Forerunner’s new research platform, The Dinner Party, to check in on people’s 2023 intentions and spending plans. We found that 76% of respondents reported planning to spend about the same or more on personal goods in 2023 compared to 2022, and this trend does not materially vary by age, income, or credit score. Some of the primary areas of planned investment and major spending: personal health, home goods, hobbies-related equipment, and travel. Some areas where planned spending is especially low: personal technology (new phones or computers), clothing and accessories, and new cars. This reflects the theme we’re committed to this year at Forerunner: a refreshed, sharper focus on the core life fundamentals that help people harken back to a more pure, simpler way of living, amid a time when life foundations too often feel like luxuries for an increasingly complicated, diverse society.

Consumers are certainly experiencing today’s economic challenges. No doubt there are sectors of the economy that have challenges ahead. But it’s human nature to adapt, and we’ve always been inspired by the resilience of consumers. The next Consumer Price Index – CPI – report will be released on this coming Tuesday and we’ll be watching closely to see how the trends evolved in the first month of the year.

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What the team is talking about on Slack

There’s a lot to dig into in this Wall Street Journal piece in which college students weigh in on what physical and mental health means to Gen Z, but here’s a taste: “My generation’s health is a smorgasbord of sedentarism, anxiety and excess sugar consumption. These sickly tendencies illustrate a series of bizarre paradoxes and unexpected events. Although less likely to drink or smoke, I have become more reclusive and antisocial. Although drilled with a lifetime of nutritionary facts, I consume more and more salt and sweets.”
One 17 year old traded her smartphone for a flip phone after growing up social media addicted, and then went from feeling extreme insecurity to having bursts of creativity, better sleep and more time spent reading more often — even began looking forward to family meals. Along with a handful of like-minded friends, she formed the Luddite Club. “I fear what will become of the authentic me when or if I get back online.”
The Family Medical Leave Act has been used 460 million times since signed into law, but there are huge gaps in its coverage. Nearly 45% of workers are not eligible for the 12 weeks of leave to care for themselves or a family member, and others simply don’t take it because it is unpaid. On the 30th anniversary of FMLA, Democrats are pushing for a national paid leave policy that would bring the U.S. up to speed with other industrialized nations.
Gen Z’ers would rather talk sex or politics than money, according to a new Intuit poll. Instead of the hustle-GirlBoss culture of the last decade, they are choosing the less stressful path of “soft saving,” focusing on their quality of life in the now rather than worrying about saving for an unknown future. Not only do they admit that social media comparisons make them feel inadequate financially (some have fessed up to lying about their salary), but the survey also shows that Gen Z is confused by conflicting advice and could benefit from new ways to save.
Menopause has been “one of the great blind spots of medicine.” Women are getting very little advice from doctors about how to treat their hot flashes and other painful symptoms, even though it turns out that there may already be a treatment that exists to help them. The New York Times examines how the healthcare of older women has been overlooked and underserved for so long.
Related: some brands and a few celebrities are seen as trying to cash in on the “normalization” of aging and menopause, but activists are concerned that this could lead to shaming and extortion.
A recent poll found that 35% of millennials have at least one of their monthly bills paid for by their parents. For nearly a quarter of them, that bill is rent. About 70% say that they plan to take over all their finances within two years, while 30% are going to milk it for as long as they can.
More than 80% of millennial and Gen Z consumers say they’ve bought something after seeing an ad on social media. (Notably, they’re suckers for funny videos—who isn’t?) Specifically, 66% of Gen Z’ers admit that their generation is the most irresponsible with money, and 71% say their age group is also the most susceptible to social ads.
As layoffs and the disenchantment with full-time employment becomes increasingly common, John Hu, CEO of Stan, predicts more and more people will be looking to monetize their passions as creators. And consumers are responding. “Our Creators see email open rates of 60-70%—compare this to the paltry 10% open rates of legacy brands.” When corporate gatekeepers are no longer necessary, creators are the new brands.
Will the increase in return-to-office mandates (and the long commutes and loss of flexibility that come with it) cause even more mothers to quit their jobs?

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The CQ

Are Consumers Really Freaking Out?