• by Corinne Casagrande , April 25, 2022

Maybe you’ve felt it at the salon, paying 40% more for a manicure. Or a more significant bill from a routine wellness visit. The price index of services rose twice as much in March as products (outside of food & energy), and there is plenty of evidence that the market is bearing it. Signs point to services as what consumers want to spend on in Q2. 

Will consumers be able to afford this?

Services (such as entertainment or events) encompass some of the most discretionary spending categories. This is especially important, because discretionary categories track consumer confidence and other economic indicators most closely.

With inflation at historic highs, it might seem like an odd time to be more optimistic about services. But it’s important for marketers to dig into the nuance of the current inflation situation.  Some goods, like gasoline (up 48% YOY) and food (up 8.8% YOY) are significantly more expensive and driving overall headline inflation, while prices of commodities consumers have been buying throughout the pandemic, like electronics, home-adjacent goods and even used cars, are dropping.

The climbing cost of essential like groceries and gas is a big deal for all consumer spending power, but it does hit some groups more than others.

Inflation impacts lower-income households, where marketers face greater share of wallet competition. There are some signs of optimism however: The job market is strong, especially in services. In March, over 214,000 jobs were created in professional and business services and leisure and hospitality.

The unemployment rate is the lowest it’s been since February 2020.  U.S. taxpayer refunds are higher, on average, than last year. Restaurants seem to be in a better position, especially as the rate of inflation for groceries is rising month to month significantly more than the price of food away from home. Marketers who sell classes, concerts, or care to affluent consumers might finally see a break in the clouds.

Travel is likely to get the biggest bump

Travel is the industry that will most likely see most of those services dollars captured. Eighty-one percent of consumers state they intend to take at least one leisure trip in 2022, per Mintel.  While 2021 bounced back significantly for the travel & tourism sector with a 68.2% increase in total sales, Mintel forecasts a smaller, but continued increase of 2.3% over 2021, totaling $540 billion total U.S. sales for travel & tourism this year. 

Will this summer see consumers spending savings on plane tickets like they did last year?  Traffic at airports indicates they will. At this time last year, U.S. airports saw about 33% fewer travelers. Since the beginning of the year, TSA checkpoints are approaching pre-pandemic levels. April is seeing just about 5% fewer travelers on weekends than 2019.

Forecasting demand for “stuff” post-pandemic

There is always reason to be conservative if you’ve seen hockey-stick growth recently. Marketers who sell stuff might be in for a bumpier few quarters as service spending increases. However, adjacent opportunities abound for most marketers. A wedding invite might have triggered a trip to the salon for that expensive manicure, but your consumer is open to a new clutch to complement it.  

As always, we need to walk through the consumer’s mindset and behaviors as they make purchase decisions to understand where our products (but especially services) can add the most value.

Note: Inflation and jobs numbers from US BLS March reports