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Given the uncertainty in financial markets and the increased importance of the consumer sector in today’s economic environment, we are updating our views on the sector and what it means for investing. Representing 67.5% of the U.S. economy in 2019, consumer spending has long been a major driver of U.S. real GDP growth. That role only increased during the COVID-19 pandemic; in some quarters consumption grew to be the sole driver of economic growth. Yet, amidst sticky inflation, decreases in real disposable income, equity market volatility, and declines in sentiment, personal consumption growth is poised to soften over the next twelve months. The consumer will be forced to make important spending tradeoffs, which for investors, is only further complicated by the shifts in behavior catalyzed by the pandemic. Herein we present our views on the categories likely to outperform against that backdrop.


Personal Consumption: We expect a material slowdown in personal consumption as the high-income consumer slows spending over the next 12 months.


Inflation: We expect sticky inflation to remain elevated amidst higher shelter costs, exacerbated by Fed rate increases.


Key Pressure Points: The middle class is facing the highest rates of cost inflation given the share of wallet allocated to transportation expenses.


Consumer Behavior: Consumer behavior during the next downturn will diverge from prior recessions (1973-2019) amidst COVID shifts.


Key Themes: Thematically, we are constructive on rentership, vehicle maintenance, personal care, services rebound, work from home (WFH) renovation, ESG and value.