Oxford Economics predicts that U.S. households will experience greater growth in the real disposable income sector than those in other advanced economies this year. However, this growth rate is likely to experience the most substantial decline in the U.S. in 2024.
Director of global macroeconomic research at Oxford Economics, Ben May, anticipates steady but lower real income growth rates for the eurozone, the U.K., and Canada. He also expects Japan to see a recovery, albeit from a low starting point.
These predictions are based on a combination of steady (though not particularly impressive) real incomes growth and solid household balance sheets, suggesting that the worst may be over for most advanced economies – though recovery may not be robust. Slow wage growth and moderate employment growth could boost nominal income growth, except in Japan, where lower inflation could give a partial boost to real income growth.
In 2022, U.S. consumer spending rose by 2.2%, which was slightly under the average growth rate of the past five years, yet still with a higher growth rate compared to other advanced economies. According to Oxford Economics, this relative resilience of U.S. consumers in 2023 was largely attributed to stronger real household income growth which was fueled by lower inflation.
For this year, the research firm predicts that U.S. and U.K. consumer spending growth will outpace other economies, riding on the back of improved real income growth. Conversely, the Eurozone and Japan are anticipated to see steady but unremarkable rates of household spending growth, while Canada may lag due to an underwhelming performance in the first half of the year.
Factors such as higher inflation or subdued employment could challenge consumer spending. Uncertainty about the impact of increasing household debt rollover onto higher interest rates could also potentially affect spending. Despite this, Oxford Economics expects the U.S. savings rate to increase from its pre-pandemic average.
