The sugar high of stimulus has faded, and the Federal Reserve has been aggressively tightening to rein in inflation from multi-decade highs. While this is taking its toll, consumers are still in a very solid financial position and are spending more than ever. Annual U.S. total personal consumption expenditures are slowing in growth but were at a record high as of August (the latest available data), even when adjusted for inflation.

Leading indicators point to further waning economic momentum in 2023. While other sectors of the economy are likely to contend with more acute downward pressure, positive consumer fundamentals and a prioritization of nondiscretionary spending signal a probable soft landing for the eyecare industry overall. Additionally, the service sector is faring better than the goods sector.

Consumers are bending but not breaking under elevated inflation. They are saving a lower percentage of their incomes but are not getting into trouble with debt; delinquency rates are rising but still low compared with recent years. Real personal income (excluding transfer payments) is rising.

The labor market is in the consumer’s favor; throughout 2022 there have been roughly two jobs available for every unemployed person. The labor market is likely to remain tight in the coming years given demographic trends. Make sure your benefits packages are competitive, but even more importantly, refine your office culture to help you retain your existing talent.

While 2022 was characterized by the highest inflation since the early 1980s, we anticipate disinflation (prices still rising, but at a slowing pace) in 2023. This trend is already developing in monthly data. U.S. Consumer Price Index inflation tentatively peaked at 9.1% in June and was down to 8.2% in September. Disinflation will help ease some of the pricing burden on the consumer, but a more price-conscious mindset will likely remain in 2023. Cater your product mix accordingly and be mindful that higher-cost options will likely be slower to move.

U.S. personal consumption expenditures for eyeglasses and contact lenses are rising at a slowing pace. In the 12 months through August (the latest available data), they averaged a record $48.2 billion, coming in 10.7% above the same period one year ago. Our expectations for the broader consumer sector suggest expenditures will be on the back side of the business cycle (likely slowing growth, though there is potential for mild contraction) until around year-end 2023. Overall, there will likely be opportunities for growth in your business in 2023 but expect that consumers will be more calculated in their spending than in 2021 and much of 2022.

Federal Reserve actions pose a downside risk that we are monitoring. The Fed has taken an aggressive approach, raising interest rates at the fastest pace since the 1980s. Despite easing inflation, the Fed has, as of September, been signaling that further increases are to come. There is potential that the Fed will overtighten, as has occurred in the past, which could cause a more severe cyclical downturn for the U.S. economy. The impact of interest rate rise is not entirely immediate but poses a lingering risk that could impact activity in 2024.

Eyecare providers should prepare primarily for an environment of slowing growth in 2023, but they should also build a contingency plan. Don’t be afraid to invest in your practice but be careful not to overburden your cash flow. Keep in mind that consumers are likely to be more price-conscious and may choose lower-cost frames and lenses, potentially impacting your margins. The labor market will remain tight, so consider investing in labor-saving technology.

ABOUT BRIAN BEAULIEU
An economist with ITR Economics since 1982 and its CEO since 1987, Beaulieu is also chief economist for TEC, a global organization comprising more than 13,000 CEOs. Previously, he was an economist for the U.S. Department of Labor. Beaulieu is a featured speaker at the upcoming The Vision Council Executive Summit in January.