US consumers send mixed signals in an uncertain economy

A few months into this year, the state of the US economy continues to be in great flux. Although inflation rates are lower than this time last year, they still remain high, more than twice the Federal Reserve’s target. Federal Reserve officials have raised interest rates over the past year, and are signaling that more increases are still to come. And while layoffs dominate headlines, the US unemployment rate remains low, at 3.5 percent as of March 2023, and the labor market remains very tight.

It’s no wonder, then, that as the US economy continues to send mixed signals, consumers are doing the same. According to the results of our latest US Consumer Pulse Survey, they’re worried about rising prices and job security, yet they’re optimistic and still spending. They’re switching to less expensive brands to save money, but they’re also willing to splurge on certain goods and services. And three years since the onset of COVID-19, some prepandemic shopping habits have returned with a vengeance, yet other new pandemic-induced changes in spending seem here to stay. The picture can be perplexing. Cecilia Rouse, who served as Chair of the White House Council of Economic Advisors until the end of March 2023, recently told the New York Times, “Sometimes I, in this course of the last few years, wished my PhD was in psychology,” instead of in economics.1

Our latest research lifts the lid on some of these dichotomies and complexities of US consumer sentiment and behavior. It’s now clear that while consumers increased their spending by double digits from mid-2021 through mid-2022, spending growth has begun to decelerate since late 2022. And while many consumers can spend given their strong balance sheets, they are more selective about what they do spend on. The picture continues to evolve. That means companies should not overgeneralize when it comes to examining consumer behavior. Instead, they can tease out nuances and seeming contradictions between sentiment and behavior, seek to better understand different types of consumers by generation and income level, and focus on improving the omnichannel experience for consumers.

Since the COVID-19 pandemic began, we have regularly polled US consumers about their spending habits and opinions. Our latest Consumer Pulse Survey was in the field from February 24 to March 1, 2023, and included responses from 3,973 adults in the United States (sampled and weighted to match the general US population). As we’ve done in the past, we combined the survey results with third-party data on consumer spending for our analysis. The following seven charts are highlights from this research.

Younger people are more worried about job security.
Consumer confidence is improving again.
Consumers continue to spend, but growth in real terms is slowing.
More consumers than ever are seeking value by ‘trading down.’
Younger and higher-income consumers still plan to splurge this year.
Spending varies across categories.
Consumers have a strong preference for omnichannel shopping.

Given the continued uncertainty in the economy, and how consumers are responding with their own mixed signals, we believe companies can remain nimble and ready to flex when opportunities arise by doing the following:

  • Find pockets of optimism and be ready to deliver where consumers want to splurge.
  • Personalize experiences and offers to inspire purchases.
  • Define what “value” means to consumers as they continue to trade down.
  • Further strengthen omnichannel capabilities across both digital and brick-and-mortar shopping experiences.
  • Expand or invest more in high-growth categories and channels against the backdrop of uneven growth across products and services.
  • Build real-time consumer and market insights into your operating model to make the best growth decisions and deliver the right experiences.
Explore a career with us