U.S. Discretionary Consumer Demand Expected to Remain Resilient in the Second Half of 2026
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U.S. Discretionary Consumer Demand Expected to Remain Resilient in the Second Half of 2026
Discretionary goods consumption broadly accelerated in the first half, led by autos and furniture; Morgan Stanley expects goods consumption to remain strong in the second half, though category performance will diverge.
- Average real consumption growth in the first half of 2026 was 1.8%, above 1.5% in the first half of 2025.
- Real PCE growth in the second half of 2026 is expected to average 2.2%, supported by easing inflation, improving real labor income, and moderate job growth.
- Real PCE grew at a 3.2% annualized quarter-over-quarter rate in the second quarter, with goods up 5.2% and services up 2.2%.
- Spending on big-ticket discretionary goods, concentrated among high-income households, accelerated, indicating that these households still support consumption despite tighter financial conditions and market volatility.
- Auto and furniture spending may normalize, while revisions to the software price deflator could raise measured real consumption of recreational goods.
Report interpretation
Overview
Based on consumption in the first half of 2026 and second-quarter GDP data, Morgan Stanley believes U.S. consumers are shifting more spending toward discretionary goods. Despite energy-price shocks, tariff-driven pressure on goods prices, and tighter financial conditions, spending on big-ticket durables such as autos and furniture strengthened materially, reflecting that high-income households remain an important support for aggregate consumption.
Core views
The report maintains a constructive outlook for real goods consumption in the second half of 2026, expecting consumer resilience to continue as inflation cools and real income improves. Rebalancing is likely within goods: unusually strong first-half auto and furniture spending may slow, while apparel and footwear should benefit from improved purchasing power; revisions to the software deflator may lead to an upward revision in measured real consumption of recreational goods. Discretionary services consumption is currently weak, but the data are sensitive to revisions from the Quarterly Services Survey, so it is too early to conclude that weakness will persist.
Analysis framework
The report compares real PCE and category-level consumption growth in the first half of 2026 with the same period in 2025, and combines second-quarter GDP, income, energy prices, auto affordability, tax refunds, and the concentration of high-income household spending to assess changes in aggregate consumption and its category mix. It specifically highlights the effect of future statistical revisions on services consumption and software-related real spending.
Methodology notes
Evaluates consumption momentum using growth in real personal consumption expenditures and components including goods, services, durables, and nondurables.
Uses consumption data adjusted for price effects to identify aggregate consumption growth and structural shifts between goods and services.
Assesses the marginal contribution of high-income households to aggregate demand through their larger spending share in big-ticket discretionary consumption categories.
Strength in categories including autos, recreational goods, furniture, entertainment services, and food services is viewed as indirect evidence of resilient high-income household consumption.
Assesses the effects of BEA software price deflator adjustments and QSS incorporation on real consumption estimates.
Changes to software price measurement may raise real recreational-goods consumption, while services components may undergo substantial revisions after QSS incorporation.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- U.S. Consumer Discretionary and Durable Goods DemandDirectly benefits from a macro environment in which discretionary goods consumption remains resilient.
- Strengths
- High-income households remain willing to make big-ticket purchases, while easing inflation and improving real income can broaden support for consumption.
- Weaknesses
- Growth relies heavily on high-income groups, while improvement among other income groups still depends on further recovery in real income.
- Comparison
- Goods consumption is stronger than services consumption; discretionary goods overall are stronger than staples categories.
- Risks
- Further tightening in financial conditions, high oil prices, and pressure from auto prices and interest rates could restrain demand.
- Auto ConsumptionA key driver of discretionary goods growth in the first half, but expected to normalize in the second half.
- Strengths
- Real new-vehicle spending accelerated and outperformed used vehicles, reflecting strong willingness to make big-ticket purchases.
- Weaknesses
- Overall spending remains below its 2024 peak.
- Comparison
- Compared with other categories, autos contributed more prominently in the first half but are also more likely to pull back subsequently.
- Risks
- Affordability pressure from high oil prices, new-vehicle prices, and financing rates.
- Furniture and Household Equipment ConsumptionStrengthened notably in the first half, supported by big-ticket discretionary purchases.
- Strengths
- Furniture and furnishings purchases accelerated, with real spending materially above recent levels.
- Weaknesses
- Current levels are elevated, raising questions about sustainability.
- Comparison
- Outperformed most staples categories and, together with autos, led discretionary goods.
- Risks
- Demand may normalize after concentrated releases of demand earlier in the period.
- Recreational Goods and Software-Related ConsumptionCurrent data are weak, but there is upside potential from statistical revisions.
- Strengths
- Adjustments to the software price deflator may reduce measured software inflation and raise real consumption.
- Weaknesses
- Performance in 2026 lags 2025, mainly due to software- and computer-related spending.
- Comparison
- An exception of relative weakness among major discretionary goods categories.
- Risks
- The upside partly depends on BEA revisions and may not reflect an equally sized improvement in underlying demand.
- Discretionary Services ConsumptionGrowth has slowed, and conclusions still require validation from subsequent data.
- Strengths
- Food services rebounded notably in the second quarter.
- Weaknesses
- Multiple discretionary services categories, including travel, food services, and gaming, decelerated in the first quarter, while food services account for less than 10% of total services.
- Comparison
- Currently weaker than goods consumption.
- Risks
- QSS revisions may materially change the preliminary assessment of services consumption.
Key data
- Real Consumption Growth in the First Half of 20261.8%Average growth rate, above 1.5% in the first half of 2025.
- Forecast Real PCE Growth for the Second Half of 20262.2%Supported by easing inflation, improving real labor income, and moderate job growth.
- Real PCE Annualized Quarter-over-Quarter Growth in Q2 20263.2%Goods grew 5.2%, while services grew 2.2%.
- Durable Goods Annualized Quarter-over-Quarter Growth in Q2 20266.8%Ended weakness in the prior two quarters, mainly driven by autos and furniture.
- Nondurable Goods Annualized Quarter-over-Quarter Growth in Q2 20264.4%Real gasoline spending declined 4.9% during the same period.
- Annualized Quarter-over-Quarter Growth in Real Food Services Spending4.74%Rebounded in the second quarter, compared with -3.4% in the first quarter.
- Services Consumption Annualized Quarter-over-Quarter Growth in Q1 20260.5%Multiple discretionary services categories decelerated.
Impact & implications
At the macro level, a tilt in consumption toward goods should help sustain resilient U.S. demand in the second half, but this does not imply synchronized improvement across all discretionary consumer subsectors. Autos and furniture face cooling risks from strong bases, oil prices, and affordability constraints; apparel, footwear, and recreational goods have scope for relative improvement or statistical upward revisions. Investors should distinguish initial services-consumption readings from subsequent revisions.
Risks
- High oil prices, tariff-related price pressures, or further tightening in financial conditions could weaken discretionary consumption.
- Elevated new-vehicle prices and interest rates may constrain auto demand, while furniture spending may also cool because of high bases.
- A consumption structure led by high-income households means aggregate demand remains highly sensitive to asset-price volatility.
- Initial services-consumption readings rely on estimates, and revisions after QSS incorporation could alter the current assessment.
- Revisions to the software price deflator will affect statistical readings of real recreational-goods consumption; statistical effects must be distinguished from changes in underlying demand.
What to watch
- The preliminary second-quarter Quarterly Services Survey release on August 20 and revisions to services consumption in the second GDP release for the second quarter on August 26.
- The annual National Income and Product Accounts revisions on September 30 and adjustments to the software PCE deflator.
- The impact of auto sales, new-vehicle prices, financing rates, and oil prices on big-ticket consumption.
- Whether goods categories such as furniture, apparel, and footwear rotate as expected.
- The degree of support that inflation, real labor income, and the labor market provide to consumption among middle- and lower-income households.