Morgan Stanley Fixed-US Economics Takeaways from the Consumer Expenditure Survey-110543565

M IdeaUS Economics | North AmericaTakeaways from the Consumer Expenditure SurveyMorgan Stanley & Co. LLCSarah A WolfeEconomist Sarah.Wolfe@morganstanley.com +1 212 761-0857 Heather BergerStrategist Heather.Berger@morganstanley.com +1 212 761-2296 Arunima SinhaGlobal Economist Arunima.Sinha@morganstanley.com +1 212 761-4125 Sam D CoffinEconomist Sam.Coffin@morganstanley.com +1 212 761-4630 Diego AnzoateguiEconomist Diego.Anzoategui@morganstanley.com +1 212 761-8573 Lenoy DujonUS/Canada Economist Lenoy.Dujon@morganstanley.com +1 212 761-2779 The Consumer Expenditure Survey for 2023 showed income growth decelerated for all income groups and spending followed suit. However, high-income households fared relatively better, supported by higher interest rates and asset prices.• Overall, the survey provides more conviction that the consumer was solid in 2023. Income and spending decelerated across the board, but there were greater income gains for top earners compared to bottom earners. • Wide divergence in savings. The bottom 40% of consumers by income quintile saved less on average in 2023 than they did pre-Covid. The opposite was true for the top earners due to an increase in asset prices and interest income.• Essentials continue to make up a larger share of spend as compared to pre-Covid. Cost of living expenses rose notably for the bottom 20%, likely driven by housing affordability pressures disproportionately hitting non-homeowners.• Spending on discretionary continued to slow as pent-up demand cooled. Nonetheless, YoY growth among the top 40% remained solid for discretionary, in particular among travel categories (dining out, airfares, accommodations). Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.September 30, 2024 06:18 PM GMTM Idea2Consumption is Slowing, but Dispersion Remains Earlier this week, the Bureau of Labor Statistics released its annual Consumer Expenditure Survey with data on 2023 consumer spending. Despite the lag, this survey is extremely useful in analyzing consumption trends across different demographic groups, giving us a more clear picture of overall consumer health. We highlight three key takeaways from the survey. Overall, the CES data underscore our view that consumption slowed in 2023, mostly driven by lower income pressure, but remains healthy on aggregate. The fundamentals that drive consumption, including labor income and credit, were not as rosy in 2023 as in the year prior and have slowed even further in 2024. We expect that consumption will remain steady given our expectatio