The Consumer Behaviors Of 2022 That Will Most Impact Retail In 2023

In 2022, consumers were beset by competing forces. High savings fed by government stimulus vs. high inflation that ate away at both wage gains and savings. Low unemployment vs. the tech hiring freeze and layoffs (sometimes for the first time at some companies). High home values vs. high interest rates. For every one thing that could have helped consumers gain confidence as we entered the “endemic” phase of Covid, there was something else there to bring consumers crashing back down.

As we enter 2023 and try to figure out what consumer behavior is going to be like and how it will impact both retail and the larger economy, it’s worth taking a look at where consumers left off at the end of 2022. Some of those opposing forces are still very much in play, and will continue to shape both consumer confidence and their spending habits. Here are four key questions that will have the most impact on consumer behavior in 2023.

Will There Be a Recession?

While you can sum up a lot of economic uncertainty into this one question, for consumers it’s actually more nuanced. “Will consumers feel like there is going to be a recession?” is probably more important in the first half of 2023 than whether or not the economy hits the technical definition of a recession (two consecutive quarters of falling GDP). Another way to look at it: will consumer confidence in future disposable income be shaken by an uncertain economy?

Preliminary spending data from Mastercard, which tracked Holiday 2022 (defined as November 1 through December 24), indicates that consumer spending was up 7.6%, averaged across both online and stores, and not accounting for inflation. That last part is key, as inflation was still running around 8% in November and December, so the next impact is closer to flat year-over-year spending, if not slightly down.

Consumer confidence was up in December 2022, according to Conference Board’s index, but consumers’ confidence in the current situation has been higher than their confidence in the future since early 2021.

Inflation – a key driver of how much disposable income consumers really have – is forecasted by Euromonitor to have peaked in 2022. The drivers of inflation in the US are different than they are in the UK and Eurozone countries, which means the US is likely to see lower inflation than those economies in 2023, but any easing of inflation is going to help consumers realize more spending power.

However, while inflation may improve in 2023, interest rates are likely to remain high and even increase again. For consumers who have moved from spending savings to increasing their debt to pay for things like holiday gifts, this will continue to hit hard – and eat into their disposable income. The personal savings rate hit 2.4% in November, according to the St. Louis Fed, which is the lowest it has been since July 2005. And consumers definitely increased debt to pay for holiday spending, according to a LendingTree survey – debt that is 24% higher than the amount consumers took on in 2021, and that consumers expect will take them longer to pay off in 2023 than it did in 2022.

Overall, it appears that consumers will have less disposable income to spend, and a bigger holiday spending hangover going into 2023. Whether that translates into lower spending depends on the second half of consumers’ economic situation – employment and wages.

Will I Have a (Good) Job?

Tech hiring freezes and layoffs have dominated the latest headlines about jobs, but that is only a fraction of the overall workforce. The pandemic sent a lot of people out of the workforce – in some cases, apparently for good, resulting in approximately two million workers “missing” from the labor market today, according to the Kansas City Fed.

There are a whole lot of questions about the potential skills mismatch between the people who left the workforce and the jobs that are still available today, but the fact remains that the unemployment rate is still very low at 3.7%, and the data from October 2022 (the last reported) indicated that it’s holding steady – there are roughly as many people getting hired as there are leaving their jobs (whether voluntary or otherwise). You can’t find two million workers overnight, and for many of the people who left the workforce in 2020-2022, there may be no wage increase that would lure them back. This offers a certain level of employment protection going into 2023.

December’s consumer confidence index from the Conference Board included employment expectations and all signs there reflect that employment confidence. More consumers indicated that the economy is good and jobs are plentiful than did so in November, and fewer consumers indicated that the economy is bad or that jobs are hard to find.

There is still some underlying worry about jobs, though. In December vs. November, fewer consumers expected that their wages would increase over the next year, and definitely workers are hoping that work from home (WFH) or hybrid work situations will continue – LinkedIn reports that in October only 15% of job listings were for remote work, but they garnered 50% of the job applications.

Overall, it appears that workers are fairly confident that they’ll have jobs. They’re less confident that their wages will keep up with inflation, and they may have to grapple with increased costs to work (and less personal time) if they have to go back to offices. Combined with the potential for less disposable income to spend in 2023, it suggests that consumers will make some changes to their spending habits, but not drastic changes (this varies by income level, which I’ll tackle below).

Will the World End?

Unfortunately, this is not a facetious question. Between the conflict in Ukraine and Russia’s not-so-idle nuclear threats, the ever-present tensions with North Korea and Iran, and now the new Covid surge in China, geopolitical uncertainty has been thrust upon the average consumer’s awareness in ways that can definitely impact consumer confidence and spending habits.

The first main threat on consumers’ minds appears to be the threat of nuclear war – which some analysts say hasn’t been this high since the Cuban Missile Crisis. And for as much as Americans fear the potential, the risk is even higher in Europe, between the conflict and damage around Ukraine’s Zaporizhzhia Nuclear Plant and its potential for a devastating meltdown and the potential for Russia to deploy dirty bombs or smaller nuclear weapons directly in Ukraine.

And then there’s Covid. While most countries in the world have had their waves of exposure and surges of illness, China has not. But that zero-tolerance policy ended abruptly in December, and the resulting surge there already looks to be about as bad as it can be. The loss of life, the potential to build on the political protests that led to the policy’s end, all threaten more heartache and instability affecting a very large portion of the global economy.

But the real fear – and danger – is that this many people all experiencing a Covid wave at the same time will lead to new mutations and variants that can escape the vaccine and hard-fought immunity gained elsewhere. And we all know what that could mean for new mandates and restrictions, as well as consumers voluntarily lowering their risk profile by staying home.

When Will This All Be Over?!?

Consumer behavior is driven in large part by their confidence – their confidence in the present, and their confidence in the future. That confidence still rests on shaky ground. But one thing is certain: everyone is tired of worrying, to the point where Trendwatching, for example, called out the term “Permacrisis,” which pretty much needs no definition.

Whether consumers have money, jobs and/or their health, they are looking for a way to lighten the load – and this is where retailers and brands have the most opportunity to impact customer confidence and behavior in 2023.

Yes, there will be a definitive split between the disposable income and shopping habits of high income shoppers vs. low income shoppers in the year ahead – with low income shoppers looking for any deals that will help them stretch their shrinking disposable income. Yes, there will still be disruption in where consumers shop, as high interest rates and home prices keep more consumers locked in place, and fighting to stay home instead of returning to the office.

But the retailers who win in 2023 will do so by giving consumers a feeling of escape, of hope. A glimpse of a brighter future ahead. A light at the end of the tunnel. Whether those things are true or realistic, it’s all about how consumers feel. And whatever happens, they want to feel much better about 2023.