In the first quarter of 2025, US consumers reported feeling nearly as optimistic as they did at the end of the previous year. This optimism was buoyed by a robust economy with low unemployment, steady job growth, and stable inflation. However, for US consumers across income groups and generations, spending intentions were down across several discretionary categories. Unlike in early 2024 (when consumers carried their approach to holiday spending into the new year), consumers this year reverted to their typical approach to new-year spending.
The following five charts showcase findings from our latest ConsumerWise survey.
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, I’m planning to spend less simply because prices of basic needs like utilities, eggs, food in general, and fresh items have increased. So I’ll probably spend a little less on apparel and other things like shoes, and maybe less on vacations, than I have in the past.
Female, baby boomer
We spent a lot last year . . . so now we’re buying actual necessities and looking for good deals. We want to be intentional with our money and ensure that our money goes as far as it can possibly go. We need to be able to afford to live in the current economy, which doesn’t seem to be changing. So we need to do our best to tighten our belts.
Female, millennial
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.
We don’t spend a lot of money on other types of entertainment at home, but we enjoy luxury travel at high-end resorts. We use airline and credit card points, so we try to get the most out of our travel. I’m worried about inflation and everyday things costing more, but right now, I don’t think it’s going to affect how we travel.
Male, Gen X
Optimism might have been the prevailing feeling among US consumers in the first quarter of the year, but spending intentions across demographic groups nevertheless remained mixed. These shifts underscored different priorities across age groups and income levels. As economic data continues to fluctuate—for instance, inflation rose above economists’ expectations in January—consumer players should keep a close eye on whether consumer sentiment and behavior align once again. To contact us for more information or to read additional insights, check out our ConsumerWise page.
To see previous ConsumerWise insights, visit our page of 2024 research.
ABOUT THE AUTHOR(S)
Becca Coggins is a senior partner in McKinsey’s Chicago office, Christina Adams is a partner in the Dallas office, and Kari Alldredge is a partner in the Minneapolis office.
The authors wish to thank Andrea Leon, Andrew Pitakos, Braj Bhadauria, Christina Anderson, Christina Sexauer, Eitan Urkowitz, and Tom Skiles for their contributions to this article.
This article was edited by Alexandra Mondalek, an editor in the New York office.
