MS US Economics Resilience of Discretionary Consumer Demand

M August 13, 2026 01:00 PM GMT

US Economics | North America Morgan Stanley & Co. LLC Idea

Arunima Sinha Global Economist

Chief US Economist Consumer spending on discretionary goods accelerated in 1H, Diego Anzoategui Economist with strength in big ticket items typically concentrated amongst

high-income consumers. We expect continued resilience in Andrew S Percoco Equity Analyst discretionary goods spending in 2H, though with some shifts

between categories. Sam D Coffin Economist

Key Takeaways Lingdi Xu Economist In 1H26 real consumer spending shifted towards discretionary goods.

These categories are more exposed to upper income cohorts; the acceleration occurred despite tighter financial conditions.

We remain constructive on real goods spending in 2H26, and expect some further improvement in services.

We expect some normalization in autos and real furniture spend.

There is upside risk to recreational goods spending as software deflators are revised.

Exhibit 1: In 1H26, the spending on discretionary categories accelerated relative to 2025

Weighted avg of category growth rates (%) 3.0 Discretionary Essential Total Real PCE (benchmark) 2.5

0.0 2025 H1 2025 H2 2026 H1 Morgan Stanley does and seeks to do business with Source: BEA, Haver Analytics, Morgan Stanley Research. Note: this is an approximate weighted average of goods and spending companies covered in Morgan Stanley Research. As a result, categories based on nominal spending shares. 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.

Our takeaways from recent spending data, and our expectations for 2H26 With the release of the 2Q26 GDP report, we now have a complete picture of consumer spending in the first half of the year. Real consumption growth remained solid: averaging 1.8% in 1H26, relative to 1.5% in 1H25. We expect real PCE growth to average 2.2% in 2H26 as inflation decelerates, real labor income improves, and the labor market continues to expand at a moderate pace.

We are not surprised spending held up, but we are surprised where strength materialized: the most striking feature of the first-half data was the broad acceleration in goods spending, particularly in discretionary goods categories. This is unusual in light of the large energy price shock and previous upward pressure on goods prices from higher tariff rates.

Five points stand out. First, most discretionary goods categories accelerated. Second, motor-vehicle spending was especially strong. Third, the only discretionary goods category that weakened was recreational goods and vehicles, largely because of a decline in computer software and accessories. As discussed below, the forthcoming price-deflator revision could reverse part of that weakness. Fourth, discretionary goods are disproportionately purchased by upper-income households, so the first-half strength suggests these consumers continued to spend on big-ticket items despite asset-market volatility and the tightening in financial conditions. Larger tax refunds may also have contributed. Fifth, discretionary services softened, but we would wait for the revised Quarterly Services Survey (QSS) data before concluding that the slowdown will persist.

Exhibit 2: In 1H26, real PCE growth is running at a slightly Exhibit 3: The strength in goods spending has been despite faster face than 1H25, with goods running stronger the slowdown in real income growth

Real PCE (q/q a.r., %) Real disposable personal income (q/q saar) 6% 5.0 Real PCE Goods Services 4.0

0% - Q24 2Q24 3Q24 4Q24 1Q25 2Q25 3Q25 4Q25 1Q26 2Q26

Source: BEA, Haver Analytics, Morgan Stanley Research Source: BEA, Haver Analytics, Morgan Stanley Research

For 2H26, we retain our view that goods spending should remain the stronger side of the mix as tariff and energy-price headwinds fade. Within goods, however, we expect some normalization in motor vehicles after a strong first half, as high gas prices…