Dive Brief:

• Consumer confidence has bounced back as well as consumer sentiment, with 27% more people feeling optimistic than last summer, according to McKinsey & Company’s latest U.S. consumer pulse survey. For Gen Z, the cohort most worried about employment, 46% felt the economy will rebound in two to three months.
• Consumers are spending, but still trading down by changing the pack or quantity size of their usual purchases, or by switching retailers in search of lower prices. The survey, which includes responses from 3,973 adults taken over the course of almost a week in February, found that 80% of respondents are trading down, compared to 74% in July 2022.
• Younger consumers are ready to splurge, however. Even while 88% of Gen Z respondents are trading down, 64% of them are splurging. Gen Z and millennials splurge more on fashion categories, with 61% of both groups saying they “intend to treat themselves,” by purchasing apparel, footwear and accessories. All age groups splurge on groceries and restaurants, according to the report.

Dive Insight:

McKinsey’s report finds that as inflation accelerates in the U.S. economy, consumers are displaying contradictory shopping habits. Despite concerns about rising prices and low job security, shoppers are splurging on certain purchases, but trading down on others, and while some pre-pandemic spending habits are returning, others are not. Inflation rates are lower than this time last year, even though rates are twice the Federal Reserve’s target.

Inflation still remains a consistent worry for shoppers, with two-thirds of respondents saying so. A Morning Consult survey from August last year found that 85% of U.S. respondents said that rising inflation had affected their shopping habits. In response, 79% of them looked for discounts, 77% cut back on spending and 68% had consolidated their driving trips.

While shoppers are still displaying altered shopping habits, according to McKinsey, climate change is also at the forefront of shopper’s minds as more people — a 7 percentage-point increase compared to last summer — show anxiety about climate change and sustainability.

Spending on travel, cosmetics and sports apparel is doing particularly well. Travel spending continues to grow quickly, increasing 6% year over year, and is one of the top categories that consumers plan to splurge on. Spending across pet and home categories is slowing. In March, sales of furniture and home items declined 1.9% year over year, according to numbers released by the U.S. Commerce Department.

Gen X and Baby Boomers are embracing omnichannel and are open to more methods of shopping. Of all consumers, 81% (6 percentage points higher than last year) choose to research across multiple channels before purchasing. Eighty percent of Gen X and 77% of Baby Boomers are doing the same. Omnichannel is gaining popularity, in particular in discretionary spending categories like toys and home decor.