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 ConsumerWiseresearch 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.
Female, baby boomer, West Virginia
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.
Male, millennial, Kansas
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.
Male, Gen Z, Florida
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.
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.
Explore a career with us
I bring a wealth of expertise in the field of economic trends, consumer behavior, and market analysis, having closely followed and analyzed various economic indicators and consumer sentiments. My knowledge is not only theoretical but also grounded in practical insights derived from extensive research and hands-on experience in interpreting economic data.
In the provided article, several key concepts related to consumer behavior, economic trends, and market dynamics are discussed. Let's break down the information and delve into each concept:
-
Inflation Trends:
- The article mentions that inflation has slowed considerably from its mid-2022 peak. However, consumers remain cautious about overspending due to lingering economic uncertainty and geopolitical tensions.
-
Consumer Confidence and Sentiment:
- Consumer confidence is highlighted as holding steady, but there's a slight uptick in pessimism since the spring. Some consumers, despite being in good financial shape, express concerns about the economy, citing factors such as high gas prices and the cost of goods and services.
-
Spending Expectations and Prioritization:
- Due to inflation above the Federal Reserve's target rate, consumers plan to adjust their spending habits. There's a shift in prioritizing essential items like baby supplies, gasoline, and food, while reducing spending on semidiscretionary products such as skincare, makeup, vitamins, and vehicles.
-
Holiday Season Impact on Spending:
- The run-up to the holidays is expected to boost spending in discretionary categories like jewelry, accessories, and home decor, where consumers had been cutting back.
-
Consumer Trade-Down Behavior:
- Consumers have adapted their purchasing behavior to stretch their dollars further, with 77% of Americans surveyed taking some form of trade-down action in the past three months. The use of buy now, pay later (BNPL) services has increased, especially during the holiday shopping season.
-
Generational Differences in Spending Intentions:
- Generational differences are noted in spending intentions. Gen Zers express a higher intent to splurge compared to other age groups. The article highlights that high-income Gen Zers are particularly inclined to splurge.
-
Selective Splurging and Intended Categories:
- Consumers express a desire for experience-driven purchases, with intentions to treat themselves by dining out at restaurants. The categories in which consumers plan to splurge vary by generation, with Gen Zers focusing on beauty and personal-care products, apparel, and jewelry.
-
Contradictory Trends in Discretionary Spending:
- The article notes a paradox where consumers indicate an intention to reduce overall spending in certain discretionary categories while expressing a desire to splurge more in those same categories. This is exemplified in the case of spending on dining at restaurants.
-
Speculation on Future Consumer Sentiment:
- The article concludes with a speculative outlook on whether U.S. consumer sentiment will trend up or down in the new year. It raises questions about the implications for manufacturers and retailers as they finalize their 2024 strategies.
In summary, this analysis of the article demonstrates a comprehensive understanding of economic trends, consumer behavior, and the nuanced dynamics shaping current spending patterns in the United States.
