Although slightly more US consumers are feeling optimistic about the country’s economic future, they aren’t financially confident enough to go on big spending sprees. In fact, most consumers across the United States are trading down and being thriftier than they’ve been over the past year—but they still plan to splurge selectively, as the following five charts show.
Consumer confidence
Challenges remain, but optimism is on the rise. Well into the spring season, US consumer sentiment continues to be mixed. The percentage of consumers who are pessimistic—that is, they expect a recession and a long road to economic recovery—has held fairly constant in the first months of 2023, at a level higher than at any point during the COVID-19 pandemic.
Still, there was a small uptick in optimism: 36 percent of US consumers (up from 33 percent in March 2023 and 26 percent in June 2022) expect a quick economic rebound. Optimism isn’t yet back to 2021 levels, but it’s trending in a favorable direction. Consumers in the younger demographic groups and the higher income brackets continue to be the most optimistic about their economic future—a pattern that has held true throughout the pandemic and in the period after.
Consumer spending: Real versus nominal
Real spending declined for the first time in more than two years. In March 2023, real spending fell 0.7 percent versus a year ago. The country has thus far avoided a recession, but consumers are being more financially cautious, especially in an inflationary environment where they’re not getting as much bang for their buck.
Price increases have compelled most consumers to look for ways to stretch their dollars. Trading down, as a way to manage financial pressures, is pervasive across all consumer segments—but especially among Gen Z and millennials (89 percent of consumers in each of those two groups are trading down, compared with 78 percent of Gen X and 68 percent of baby boomers), low-income consumers, Black consumers (89 percent versus 78 percent of White consumers), and Hispanic consumers (86 percent). Interestingly, 89 percent of high-income millennials are trading down—a much bigger percentage than the 58 percent of high-income baby boomers who are doing the same.
Real spending, by demographic
Most consumers—even historically big spenders—are pulling back. Real spending growth has been slowing since early 2022, with both high- and low-income groups holding their spending largely flat relative to the previous year (on a real basis, not accounting for inflation). Notably, for the first time in more than two years, high-income consumers’ spending growth was negative. In fact, they’ve reduced their spending more aggressively than lower-income groups have.
Also, year-over-year spending by millennials is down 2 percent. Among all age groups, millennials had the highest spending growth at the peak of the pandemic. This is the first time that millennials’ year-over-year spending has declined since we started tracking the data, in 2020.
Intent to splurge, by demographic
The urge to splurge is weakening slightly. While Gen Zers and millennials still show much higher intent to splurge than older generations, the most recent numbers are down compared with the prior month. In March, 64 percent of Gen Z planned to splurge; leading into May, that number has fallen to 58 percent. Baby boomers have the most conservative splurging plans: even among high-income baby boomers, only 29 percent say they plan to splurge, compared with 70 percent of high-income millennials.
Intent to splurge, by category
Consumers are still engaging in ‘selective indulgence.’ Even as consumers scrimp some of the time, they’re planning to spend big on certain categories. More than a third of survey respondents say they’ll splurge on food (both in restaurants and at grocery stores), travel, and apparel. Fewer than one in four intend to splurge on more “durable” purchases, such as jewelry and household goods.
Will US consumers’ rising optimism translate into spending growth next month? Or will consumers choose to become more tightfisted in the near term? Watch this space for monthly updates on US consumer spending, plus quarterly updates on US consumer sentiment. Email ConsumerWise@McKinsey.com for more detailed data and insights.
April 2023
Overall consumer spending growth is slowing, but consumers still intend to splurge on select categories. Here’s the latest data from our ConsumerWise research.
Consumers across the United States are uncertain about what their financial picture will look like in the next few months or years. In fact, their level of optimism is even lower than it was at the beginning of the pandemic. As a result, consumers aren’t opening their wallets too wide—but there are still some places they are choosing to splurge, as the following five charts show.
Consumer confidence
Summertime… and the living is (not so) easy. Heading into the summer season, consumer sentiment isn’t quite sunny. True, there’s been an uptick in optimism: one-third of consumers, compared with only one-fourth in June 2022, believe the economy will rebound in just two to three months. Still, more than one in five consumers are expecting darker days ahead: 22 percent are predicting a US recession and long-term economic pain. And nearly half of survey respondents report having a “mixed” outlook: they expect the economy to recover but not for another six to 12 months. These numbers are less favorable than they were throughout 2020.
Over the course of the pandemic, younger consumers have been the most optimistic about their economic future—and that remains true, according to our most recent survey results. Not surprisingly, higher-income consumers also tend to be more optimistic than middle- or low-income consumers.
Consumer spending: Real versus nominal
Consumers continue to spend more—but it’s largely because prices are higher. Although a recession has been held at bay, year-over-year spending growth is relatively flat and has decelerated following a small bump in January. Consumers across all demographic and income segments are still spending more, but they’re being slightly more cautious than they were earlier this year. And they’re not getting more for their money: much of the spending growth has been because of inflation.
Rising prices have compelled most consumers to look for savings. Four out of five consumers say they’re now trading down—whether by switching to a different pack size than what they normally buy (for example, a larger pack for a better price per unit or a smaller pack to stay within their weekly budget) or shopping at different stores to get the best deal.
Real spending, by demographic
Spending trends have converged. At the height of the COVID-19 pandemic, different demographic groups varied in their spending behavior. Since then, real spending growth has ground to a halt across all groups, with both high- and low-income groups holding their spending largely flat relative to last year (on a real basis, not accounting for inflation). The same is true across age groups as well. Will spending bounce back in the summer months?
Intent to splurge, by demographic
Younger consumers have the urge to splurge. Even as they look for ways to stretch their dollars, many consumers still plan to treat themselves: about 40 percent say they intend to splurge in 2023. That percentage has stayed more or less the same since late 2021. Higher-income millennials are at the forefront of this trend, with 70 percent of them saying they’re ready to splurge.
Intent to splurge, by category
‘Selective indulgence’ is the mood of the moment. As consumers engage in selective indulgence—simultaneously saving and splurging—which categories stand to benefit? Survey respondents say they’ll spend big on food, both in restaurants and at grocery stores; fashion, especially apparel and footwear; and travel. More “durable” purchases—such as household goods and jewelry—show lower indication of intent to splurge.
Will people across America tighten their purse strings—or will they draw on their still-relatively-high savings and continue to spend? Will their optimism rise or fall in 2023? Watch this space for monthly updates on US consumer spending, plus quarterly updates on US consumer sentiment. Email ConsumerWise@McKinsey.com for more detailed data and insights.
