Despite several years of rising costs and interest rates, US consumers are expected to maintain their robust spending in 2025.
“Overall, we expect a fairly healthy consumer … that’s driven by stronger consumer sentiment, moderating gas prices, easing inflation, and a better interest rate environment,” Goldman Sachs analyst Brooke Roach told Yahoo Finance.
In November, retail sales ticked up 0.7% compared to the 0.6% Wall Street expected.
The US economy also grew faster in the third quarter, up 3.1%. Recently, weekly jobless claims fell to 211,000, down 9,000 from the previous week. That’s a key signal for consumer spending, Moody’s Analytics economist Matt Colyar told Yahoo Finance over the phone.
Unless there’s a sustained rise in unemployment, which could change sentiments quickly, the current environment provides “a reason to feel pretty good about consumer spending.”
Disposable personal income is continuing to grow — albeit at a lower pace — and food inflation remains at a low-single-digit increase.
But brands, retailers, and restaurants alike have to compete for shoppers’ dollars.
“We do continue to expect bifurcation of performance,” Roach said. “Share gains for brands and retailers will be most focused on the retailers that are offering either newness and innovation … or retailers that are offering sharp value for the consumer.”
Per Roach, TJX (TJX), Ross Stores (ROST), and Burlington (BURL) will continue their strong performance in 2025.
“We continue to expect off-price to be a share winner … given their focus on providing great value and branded goods at a discount,” she said.
Her top pick is Burlington, given its “attractive combination” of being off-price and improving product assortment.
When it comes to apparel and accessories, look out for Amer Sports (AS) and Tapestry (TPR), said Roach. “It’s those innovative brands with growth potential that are providing that attractive newness, innovation at a sharp price point” that “compel consumers to open up their wallets.”
McDonald’s Launching McValue Platform in US Restaurants in 2025 (Courtesy: McDonald’s)
Among the fast food giants, McDonald’s (MCD) is making a splash with its new national value platform starting on Jan. 7, its first national value offering since 2018.
Bernstein analyst Danilo Gargiulo called it a “continuation” of the trend that investors saw in the second half of 2024, “which is affordability, value matters.” This comes as the growth in the cost of dining out continues to outpace that of groceries.
BTIG analyst Peter Saleh expects other chains to follow.
“Given the constant drum beat of value from behemoths like McDonald’s, we expect the rest of the industry to follow suit, doubling down on value through at least the first quarter of 2025, but likely through the summer,” he wrote in a note to clients. He has a Neutral rating on McDonald’s.
As the value competition “intensity” picks up in January, RBC Capital Markets predicts that there could be a headwind to traffic rebound and franchisee profitability at Burger King parent company Restaurant Brands International (QSR), Jack in the Box (JACK), and Wendy’s (WEN).
On the other hand, Chipotle (CMG), Cava (CAVA), and Sweetgreen (SG) are expected to keep gaining share.
“Over the longer arc, fast casual has been benefitting from trade down from casual dining for 20 years … [and] trade up from fast food has been more recent,” Sharon Zackfia of William Blair told Yahoo Finance.
The space has benefitted from the lack of innovation in fast food and investments in stores like drive-through lanes, Zackfia said.
President-elect Donald Trump’s potential tariffs are “probably not good for anything in consumer,” Zackfia said.
However, the used car space could benefit.
The “new car space potentially has above-average risk from tariffs,” she added. “The gap in affordability between used and new could actually improve in a favorable way as we go into 2025, which would be a nice reversal.”
Her top pick is Carvana (CVNA), given its “remarkable turnaround,” adding that it’s just “scratching the surface” as affordability, marketing, and inventory improve.
Cal State Fullerton economist Anil Puri told Yahoo Finance the impacts of Trump’s policies on consumers won’t be felt until the “middle of the year.” Proposed plans like tariffs, limits on immigration, and tax cuts for corporations are all considered inflationary. It’s unclear if and when the policies will go into effect.
Should interest rates stay high in case of higher inflation, that could particularly impact lower-income shoppers, added Puri.
However, both Jefferies and Goldman Sachs said there could be a return to growth for discretionary sales in 2025 as core consumer behavior stays strong.
Both say Target (TGT) could be a beneficiary, while Goldman Sachs analyst Kate McShane said Bath & Body Works (BBWI) and Dick’s Sporting Goods (DKS) could also benefit.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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