In February, concerns about inflation decreased slightly from the previous quarter, which helped consumer optimism about the US economy reach its highest level in almost two years. Although US consumers felt less pressure to save for an eventual rainy day, 20 percent were still pessimistic about the economy—but this represented the lowest reported pessimism rate since June of 2022 (although consumers were still more pessimistic than they were at the beginning of the COVID-19 pandemic). The following five charts highlight the findings from our latest ConsumerWise research in the United States.
My confidence has gone up when it comes to the state of the economy. There’s been a lot of positive change overall as the stock market has gone up, my personal portfolio has gone up, and we’ve seen more positive talk about the economy. Even spend at my local store seems to be higher.
Consumers indicated they plan to increase their purchases of essential items. The average consumer said they expected to spend more on fresh produce, meat and dairy, and center-store categories (which include the items one might expect to find in the center of a grocery store, such as shelf-stable foods or frozen foods). Among discretionary items, consumers expressed in February a higher intention to spend on travel and home (such as on short-term rentals, home improvement, hotel resort stays, and flights) than they did in the fourth quarter of 2023.
Consumers anticipated reducing their purchases of toys compared with last quarter—no surprise, given that toy sales are typically higher during the holiday season than at the beginning of a new year. Meanwhile, consumers said they expect to allocate more of their budget toward fitness and wellness, once again, in line with typical spending habits at the beginning of a new year.
We’ve been shopping at the grocery store more often to buy things that are healthier for us. And in the process, we get to save money and spend time with each other cooking and eating together. So it’s really a win–win for everybody.
Trading down—or changing the type or quantity of purchases for better pricing and value—was still prevalent among consumers in February, although slightly fewer consumers reported trading down this month compared with the end of 2023. Younger consumers traded down more than older consumers, and, not surprisingly, low- and middle-income consumers traded down more than high-income consumers. Among lower-income consumers, there was a split among generational lines: millennials and baby boomers in this group reported trading down less frequently in February compared with the last quarter of 2023, while Gen Z and Gen X consumers in this group reported trading down more frequently.
Fewer consumers reported switching to lower-priced retailers and brands in February compared with the end of last year. The reported use of “buy now, pay later” services plateaued in February, and fewer consumers said they delayed a purchase in the past three months.
Unlike 2022 and 2023, I’m no longer delaying purchases. Once the new year came, I just started going down my list and buying the things I’ve been planning. It’s all about finding the best deals possible.
I plan to splurge on myself every now and then. Some of the things I’m most excited to buy are new makeup, new clothes heading into the new season, and even being able to travel to try new foods. I definitely think it’s important to have a healthy balance, and splurging helps to enjoy life a lot more.
Consumers expressed a desire to splurge, and more than a third of respondents in our survey said they expected to splurge on food. But consumers’ ideas about what to splurge on have evolved: rather than splurging on dining out, consumers said they intended to splurge on food at home more than they did at the end of 2023. This change was most evident among Gen Zers and millennials.
Travel also became a more popular splurge category in February, moving ahead of apparel and beauty, which it trailed in the last quarter of 2023. More baby boomers said they planned to splurge on travel in the next three months than any other age group.
I’ve gotten really into cooking and like to splurge on cheeses at the grocery store. We definitely cook a lot more than eating out and like to go to specialty grocery stores to buy different ingredients for cooking at home.
As inflation figures continue to fluctuate, will consumers continue to gain confidence in the economy and, therefore, continue to express an interest in splurging? Or will higher-for-longer interest rates slow spending? Watch this space for regular updates on the state of the US consumer. Check out our ConsumerWise page, and contact us for data from previous updates or additional insights.
ABOUT THE AUTHOR(S)
Christina Adams is a partner in McKinsey’s Dallas office, Kari Alldredge is a partner in the Minneapolis office, Lily Highman is a consultant in the New York office, and Sajal Kohli is a senior partner in the Chicago office.
The authors wish to thank Isabelle Engelsted, Alex Lequerica, Andrew Pitakos, Tom Skiles, and Eitan Urkowitz for their contributions to this article.
This article was edited by Alexandra Mondalek, an editor in the New York office.
Caution heading into 2024
By Christina Adams, Kari Alldredge, Sajal Kohli, and Eitan Urkowitz
US shoppers are keeping a watchful eye on their spending as uncertainty about the world around them persists. Here’s the latest research from our ConsumerWise team.
Despite inflation slowing considerably from its mid-2022 peak, consumers still expressed caution in November about overspending, given lingering uncertainty about the economy and geopolitical tensions. Consumers said they are planning to reduce their overall spend, being more selective in the products they purchase and places they splurge. The following five charts highlight the findings from our latest ConsumerWise research in the United States.
Consumer confidence held steady. While consumer sentiment has remained relatively steady throughout the year, we have seen a slight uptick in pessimism since the spring. Even though the majority of consumers are in good financial shape, slightly more Americans believe the economy is headed for a recession and are preparing accordingly.
I’m very concerned about the country’s economy, especially over the last year and the last three to six months. We still have very high gas prices. We still have very high prices for food and services and just about everything else, and it makes it harder on people who are retired.
Spending expectations rose. As inflation remained above the Federal Reserve’s target rate, consumers indicated they would adjust their spending habits by prioritizing spend on essential items such as baby supplies, gasoline, and food, while reducing spend on semidiscretionary products such as skincare and makeup, vitamins, and vehicles. Toys are the only semidiscretionary category in which consumers said they planned to boost spend in the following three months compared with last quarter—not surprising, in light of the holiday season.
The run-up to the holidays may also buoy spend in a handful of discretionary categories where consumers have been cutting back. These categories include jewelry, accessories, and home decor.
I’ll be spending more on essentials just because prices are up. I don’t intend to buy any more than the usual, but with prices continuing to change, I just predict I’ll be spending more than I do now. This is the general way all prices are right now, and I don’t expect it to change or get better anytime soon.
Consumers traded down. For much of the past year, consumers said they adapted their purchasing behavior to stretch their dollars further. Seventy-seven percent of Americans surveyed said they took some kind of trade-down action in the past three months. More consumers said they used buy now, pay later (BNPL) services in the fourth quarter of 2023 than in the prior quarter—again, likely because it’s the holiday shopping season. This payment method was particularly popular with younger consumers (26 percent of Gen Zers and 28 percent of millennials said they used BNPL services compared with 14 percent of Gen Xers and 6 percent of baby boomers).
If I have the option to have the money in my hands and be investing and using it, I’m going to make my money work for me. I don’t want it to just go toward a full payment right away. If I have the option, I’m going to use buy now, pay later. That’s why I use credit cards. I don’t plan to have debt, and I make sure there’s zero interest. That’s what I do.
Gen Zers planned to splurge. Once again, Gen Zers expressed the highest intent to splurge in the next three months compared with other age groups (63 percent versus 38 percent overall). What’s more, these young consumers also expressed the greatest increase in intention to splurge from the third quarter. The desire to “treat yourself” was even more pronounced among high-income Gen Zers.
Selective splurging persisted. Still craving experience-driven purchases, more consumers expressed an intention to treat themselves in the next three months by dining out at restaurants than by splurging on any other category. But splurge categories varied by generation. Millennials and Gen X individuals said they intend to splurge more on food, including both dining out and purchasing food for home consumption. Gen Zers, on the other hand, said they plan to splurge on beauty and personal-care products, apparel, and jewelry. Baby boomers said they intend to treat themselves with food and travel experiences.
In the final months of 2023, consumers indicated their intention to reduce overall spend in several discretionary spending categories—while their desire to splurge increased in those same categories. Restaurants offer one example: net intent to spend on dining at restaurants decreased by 21 percent, but the intent to splurge at restaurants rose by 38 percent. This likely suggests that consumers are planning to visit restaurants less frequently but may be willing to spend more during their visits.
Will US consumer sentiment trend up or down as we head into the new year? What will that mean for manufacturers and retailers as they finalize their 2024 strategies? Watch this space for regular updates on the state of the US consumer. Check out our ConsumerWise page, and contact us for data from previous updates, more information, or additional insights.
ABOUT THE AUTHOR(S)
Christina Adams is a partner in McKinsey's Dallas office, Kari Alldredge is a partner in the Minneapolis office, Sajal Kohli is a senior partner in the Chicago office, and Eitan Urkowitz is a communications specialist in the Washington, DC, office.
The authors wish to thank Miranda David, Isabelle Engelsted, Andrea Leon, Alex Lequerica, Andrew Pitakos, and Tom Skiles for their contributions to this article.
This article was edited by Alexandra Mondalek, an editor in the New York office.