2. How will consumer spending patterns shift?
While sentiment remains below historic norms, consumers continue to spend. We expect US retail sales to rise 2.8% year over year this year and growth to remain around 3.0% through 2028.
If Harris wins
Harris’ housing policy could have knock-on effects in the retail realm. Elevated interest rates and limited supply made it far harder for prospective homebuyers, stymying both the housing and home improvement markets. Between 2021 and 2024, the average monthly payment for a first-time homebuyer rose roughly 86%, per the National Association of Realtors.
Harris has called for increasing both supply and demand by building 3 million new housing units over four years and offering first-time homebuyers $25,000 in down payment assistance. The policy, in concert with the Fed’s expected interest rate cuts, could help unfreeze the stagnant housing market. In turn, that could lift a wide array of retailers and brands—including home improvement, furniture, and consumer electronics sellers—that struggle when fewer consumers move.
Her campaign also plans to restore the American Rescue Plan’s popular child tax credit expansion—which increased the credit up to $3,600 per child from $2,000—and add a new child tax credit of up to $6,000 for middle- and lower-income families for children in their first year of life.
- The policy would put more money in young families’ pockets, leading to a small uptick in demand.
- Her other policies largely maintain the status quo, which should encourage steady consumer spending.
If Trump wins
Sentiment among Republicans would rapidly rise. There’s a strong correlation between impressions of the economy and partisan leanings. Just as the 2020 election and the issuance of stimulus checks under the American Rescue Plan led Democrats’ sentiment to tick up, a similar situation will likely unfold among Republicans—especially if the Fed continues to cut interest rates. That should drive those consumers to loosen their purse strings, at least in the short term.
A Trump victory, and continued interest rate cuts, could also make businesses feel more confident about the economy, leading to more hiring and investment. That would be a welcome shift for a labor market that saw layoffs increase and job openings fall in September to the lowest level since early 2021.
But over time, rising prices would cause nominal retail sales to rise even as real sales decline. We can look back just to 2022—when supply-chain shocks caused inflation to spike. Rising prices led retail sales to grow 8.0% even as basket sizes shrank, and discretionary spending dipped. (Sporting goods sales, for example, fell 2.0%.)
The situation shifted consumer shopping habits in ways that still linger. Consumers traded down to private labels and shifted spend to less expensive retailers such as Aldi, Walmart, and Temu. However, many of the retailers that benefited from the last surge of inflation may struggle to keep prices low if they’re facing steep tariffs.
Trump’s plan to deport millions would dampen consumer demand.
- Undocumented workers contribute to local demand for groceries, apparel, cars, and other goods, as well as services such as restaurants.
- The impact would be felt most acutely in areas with high concentrations of undocumented immigrants such as California and Texas.
- The overall impact on US GDP is expected to range between -0.1% and -0.4% next year, per the Brookings Institute.