An update on US consumer sentiment: Pragmatism defines the holidays

Consumer sentiment in the United States dropped considerably compared with the beginning of the year. In the fourth quarter, the percentage of respondents who felt optimistic fell seven points from the same time last year, while the percentage reporting pessimism rose by nine points—marking a 16-point swing in net optimism. This underscores a growing uneasiness about economic conditions, including persistent inflation and a softer labor market.

This erosion in confidence was evident across income and age groups, with one notable exception: Gen Z consumers were the only group to report higher optimism (up six percentage points from the previous quarter), which is incongruous with their reported splurge intentions.

Overall, the data suggest that more consumers are entering the new year with a cautious outlook.

Concerns about the cost of living and job security grew in the fourth quarter of 2025 compared with the previous quarter. Nearly half of US consumers said inflation was among their top three concerns, though concerns about rising prices dropped seven percentage points from the same time last year. This suggests that many consumers are beginning to accept elevated prices as the new normal. Worries about tariffs continued to ease from their highs earlier in the year.

At the same time, more consumers were concerned about their finances and job security. The share of consumers citing an ability to make ends meet as a top concern increased by two percentage points from the previous quarter, while concerns about job security rose by three points. Job security concerns were particularly evident among Gen Zers: 24 percent of Gen Zers said they were concerned about unemployment in the third quarter compared with 33 percent in the fourth quarter. Healthcare costs emerged as a pain point, showing the largest quarter-over-quarter jump among all economic, political, or social concerns tracked in the survey. This comes as little surprise, given the recent fight to extend healthcare subsidies, which resulted in the longest government shutdown in US history.

These shifts suggest that while consumers may be adjusting to a higher-cost environment, their focus is turning toward sustaining financial stability and securing access to essentials in the face of economic uncertainty.

As US consumers reported a decline in household savings, more of them also reported taking measures to manage these financial pressures. Compared with the previous quarter, the share of respondents who said they had dipped into savings to cover expenses or reduced the portion of their income allocated to savings each rose by three percentage points. And at least one in four respondents said they used their credit cards more and cut back on food spending.

Gen Z consumers felt this strain most acutely. A larger share reported cutting back on food spending, tapping into savings, and using credit more than other age groups. At the same time, some Gen Z consumers appeared to be maintaining or even prioritizing spending in select areas, hinting at a bifurcation within this generation: One group of Gen Zers is adjusting to tighter finances, while the other maintains their lifestyle despite growing financial constraints.

US consumers signaled that for most essential categories, their spending intentions remained largely unchanged from the previous quarter. A slightly larger share of consumers said they intended to spend more on core categories, including meat, dairy, and shelf-stable groceries, compared with the previous quarter, reflecting continued prioritization of necessities even amid tighter budgets (a smaller share of consumers said they intended to spend more on fresh produce despite the upcoming holiday season, which signals one way in which consumers may be trying to trim costs). By contrast, spending intent for semidiscretionary categories held flat or softened, with a sizable decline in fitness and wellness services, as is common in the run-up to the holiday season.

Certain seasonal and higher-ticket categories saw modest gains. Intent to spend on toys and vehicles rose from the previous quarter, likely reflecting end-of-year shopping and seasonal deals rather than overall consumer confidence.

Discretionary spending intentions softened, with consumers signaling plans to pull back across most nonessential categories. Net intent to spend declined similarly to historical trends in some categories, such as home improvement and gardening supplies, and in others, fell outside what we have observed in previous years: One of the greatest decreases in intention to spend came in the jewelry category—somewhat surprisingly, given the holiday gifting season. Consumers are still trading down at high rates (75 percent of consumers reported trading down in the fourth quarter), and more are delaying purchases.

In most leisure and travel categories, a smaller share of consumers intended to boost spending compared with the previous quarter. But cruises stood out: Net intent to spend more on cruises grew the most among all discretionary categories—up six percentage points from the previous quarter.

Overall splurge intent declined sharply in the fourth quarter, falling 12 percentage points from the previous quarter. But this drop wasn’t evident across all demographic groups: High-income consumers and Gen Z planned to splurge over the next three months. Among high-income Gen Z respondents, 76 percent reported plans to splurge—up ten points from the previous quarter.

For a look at the lipstick effect in action, consider Gen Zers: They remained the most likely to splurge on beauty, fashion, and dining, reinforcing their preference for accessible indulgences tied to identity and experience. Boomers, meanwhile, expressed a higher intent to splurge on travel—no surprise, given that they have more disposable income than younger generations do.

The data also revealed an intriguing paradox: Consumers most concerned about their personal finances, inflation, and the cost of living were also more likely to report plans to splurge. This could stem from how consumers define “splurging”—as spending beyond their comfort level on items that feel indulgent, even if essential—or from a broader impulse to seek modest luxuries as a coping mechanism during economic strain.

As the holiday season enters its final stretch, consumers remain focused on practicality and value while finding ways to preserve a celebratory feel and connection with others. Many began their holiday shopping as early as August yet continue to spend through year-end.

Practical gifting—favoring essentials and gift cards—is gaining momentum as consumers prioritize usefulness. Yet even in this pragmatic environment, traditions and togetherness remain central to holiday spending. Consumer goods companies and retailers should strike a balance, offering products and messaging that combine functionality with emotional value.

Consumer optimism has been steadily declining since November 2024. While pessimism has shown more volatility, it too has experienced a recent drop. Together, these shifts have driven net sentiment—the gap between optimism and pessimism—to a level 35 percent below its peak in November last year.

Rising prices, fueled by persistent inflation, remain the leading concern for consumers. Notably, concerns about tariffs have eased, with 24 percent fewer consumers citing them as a primary issue than in the previous quarter.

Across income groups and generations, sentiments reflect a growing sense of caution and uncertainty. More individuals express mixed feelings about the economy, highlighting how economic pressures are taking a toll on consumer confidence.

Consumer say they plan to prioritize essentials over the next three months, with net intent remaining positive across most necessity-driven categories. However, this trend shifts when it comes to semi-discretionary items, where spending intent shows noticeable cuts, and net intent turns negative across many categories.

The most striking development is the sharp decline in discretionary spending intentions. Although higher-income consumers are somewhat less affected by this pullback, this trend is observed across all income groups. This underscores a broader, cautious approach to spending as economic pressures continue to shape consumer behavior.

Consumers are likely to change their shopping habits this holiday season, reflecting an increasingly diverse shopping landscape across generations. Our survey findings show a blend of practicality, tradition, and varying levels of engagement between age groups.

Millennials are leading the trend of shopping earlier in the year, with 37 percent starting before October—significantly higher than the 28 percent average across all generations.

Meanwhile, only 11 percent of consumers surveyed are planning to kick off their shopping during Black Friday weekend. Gen Z stands out as an outlier, with 17 percent still associating Black Friday with the start of their holiday shopping.

Baby boomers are showing a reluctance to engage in holiday shopping altogether. A significant 22 percent of boomers report they don’t plan to participate in holiday shopping this year, eight percentage points higher than the cross-generational average.

Nearly half (46 percent) of US consumers plan to keep their holiday spending in line with last year’s levels, while roughly one in four intend to spend less. This share is significantly lower than in many European countries, where a greater proportion of shoppers intend to maintain their holiday budgets.

But spending intentions vary significantly by income group: 65 percent of high-income consumers plan to spend the same or more compared to last year, while this figure drops to 56 percent for middle-income shoppers and just 48 percent for those in lower-income brackets. This disparity highlights how economic pressures are disproportionately affecting lower-income households who are less optimistic about the economy, further shaping holiday spending behaviors.

Many consumers have clear preferences on shopping channels as well. About one-third of consumers plan to shop mostly or entirely online, while only 16 percent intend to do most, if not all, of their shopping in-store. This underscores the continued growth of e-commerce and digital convenience. However, the majority (54 percent) of consumers intend to split their shopping between online and in-store, signaling that the in-person shopping experience still holds value for many.

Spending trends for the upcoming holiday season reveal notable differences in preferences and priorities. Gift cards take the top spot as the most popular planned purchase, with 46 percent of baby boomers leading the charge. Groceries and food for home follows closely as the category where consumers plan on spending, also driven predominantly by baby boomers. This focus on gift cards and food highlights a priority on holiday hosting, entertaining, and practical gifting even amid economic pressures and uncertainty.

In the United States, 43 percent of consumers reported rising prices as their top concern, followed by tariff policies (29 percent). This comes as little surprise, given how much the discussions of global trade have occupied the American media and how engaged with tariff-related news US consumers said they have been (91 percent of consumers in the United States heard about tariffs in the news or discussed the topic with others).

Most consumers surveyed said they either have already changed their spending habits or expect to change them soon in response to tariff announcements—even if the tariffs’ effects have yet to hit store shelves. However, consumer responses varied by generation: Gen Z and millennials were more likely to say they expect to change their spending habits, while baby boomers appeared more resistant to change. One reason for these findings could be that US boomers in our previous surveys were already the least likely to splurge, meaning there could be less impetus for them to change their spending habits in response to greater economic uncertainty.

Consumers who said they expect to change their behaviors often cited traditional trade-down actions, including cutting back spending on nonessential items, purchasing fewer items, or switching to lower-priced brands and products. Again, generational differences emerged in the data: Baby boomers said they were most likely to cut back on nonessential spending (12 percentage points higher than the average response across age groups).

Many of Gen Z’s responses trended in the opposite direction compared with baby boomers. For example, Gen Zers were much more likely to purchase items secondhand in response to tariff news (seven percentage points higher than the average response across age groups), while boomers were much less likely to do so. Gen Zers may need to purchase essential items, such as vehicles, secondhand, as prices for new vehicles may be out of reach for many of them. However, Gen Zers may also be more open to secondhand purchasing in categories such as apparel, even if their budget allows for non-secondhand purchases.

Unsurprisingly, we observed a split between how lower-income and higher-income consumers plan to cut back on their spending. Low-income consumers were the most likely to say they would switch to a lower-priced brand or product (13 percentage points more likely than consumers who report making more than $100,000 a year). This trend was true across generational lines: Wealthier baby boomers were less likely to say they would change their habits, but baby boomers who are financially constrained were more likely to adapt their spending, particularly in nonessential categories.

When we looked at responses by category, 50 percent of consumers said they expect to delay purchasing in discretionary categories, such as electronics, accessories and jewelry, or dining out. Forty percent of consumers said they expect to make no change to spending on essentials, including groceries, vitamins and supplements, and gasoline.

Thanks to stable inflation, low unemployment, and ongoing job growth, a plurality of US consumers (46 percent) felt optimistic in the first quarter of the year. However, not all consumers shared this sentiment. Just over a third of surveyed consumers reported mixed feelings about the economy, and pessimism ticked up slightly from the previous quarter. Despite citing stable inflation as a reason for feeling optimistic, half of consumers also said that rising prices were their biggest worry. Notably, older consumers were more concerned about inflation compared with younger ones.

While the greatest share of consumers felt optimistic about the economy, sentiment around household finances was more mixed. Many Gen Z respondents, for example, felt financial strain, with fewer reporting income gains and more indicating they dipped into their savings at higher rates.

Overall, trade-down behavior remained consistent and pervasive. Three-quarters of consumers said they traded down in the first quarter of the year (up one percentage point from the end of 2024), though baby boomers and high-income consumers said they traded down less frequently than they did in the previous quarter. It is possible that baby boomers chose to abide by their usual purchasing patterns and brand preferences despite being worried about inflation. Millennials, for their part, were more likely to trade down by adjusting the quantity and pack sizes of their purchases.

Given high food prices, grocery spending was a particularly ripe category for trading down. Indeed, far more low-income households—51 percent compared with 40 percent in the previous quarter—traded down for meat and dairy products as prices soared. Even high-income households made more economical choices in the packaged-food category, opting for lower-priced brands and more private labels, than they did in December.

Intentions to splurge varied by demographic groups. Take baby boomers: Not only were baby boomers across income groups the least likely to splurge (only 20 percent reported an intent to splurge in the first quarter), but even fewer of them reported an intention to splurge in the first quarter of 2025. This could be because they felt they overspent during the holidays. Compare that with millennials: Just over half of millennials across all income groups said they intended to splurge, and significantly more high-income millennials (63 percent) planned to splurge, particularly on travel and jewelry, compared with the previous quarter.

After splurging on several discretionary categories over the holidays, fewer consumers said they planned to splurge in categories such as apparel, footwear, and beauty and personal care products, keeping with seasonal trends. One nonfood category stood out as particularly splurge-worthy: travel. Planning for their spring and summer holidays, more Gen Xers and boomers reported their intention to splurge on travel compared with other age groups and the greatest increase in intention to splurge on travel compared with the previous quarter.

As for food-related splurging, consumers said they planned to splurge most on restaurants and groceries. Still, fewer consumers planned to splurge on these items compared with 2024. This may indicate a shifting mindset among consumers: Since food prices continue to rise, consumers may be allocating a greater portion of their budgets to food spending, which means that these purchases may feel less like splurges and more like the status quo.