The US consumer: Beyond the headlines

Many economists expected the US consumer to slow down in 2023, amid a loosening labor market, lingering core inflation, and prospects of a technical recession. While many of these assumptions came to fruition, US consumers have proven far more resilient than expected, and a recession did not materialize. Beneath the top-line economic data is a nuanced picture of how different consumer groups are being impacted by – and responding to – economic changes. We outline the broader context and drivers behind evolving consumption patterns and share a forward-looking view.

Key takeaways include:

Consumer spending remained robust during 2023, but older consumers became much more cautious than younger consumers.

Spending was buoyed in 2023 by pandemic-era savings, which have now been largely drawn down, even as credit card debt is spiking. This raises questions about consumers’ ability to sustain current spending patterns over the longer term.

Inflation rates have eased, but this does not mean prices have come down. Many consumers’ budgets still face pressure.

Consumer sentiment is improving and bouncing back from recent lows, with the gap in sentiment between lower-income and higher-income consumers shrinking as sentiment recovers faster among lower-income consumers. 

Unemployment remains low, and real wage growth is finally turning positive. But affluent workers (e.g., tech and finance) have seen rising unemployment and are facing another spike in layoffs.

Interesting divergences have emerged in food expenditure as consumers spend more on food away from home even as they shift more toward private label products in grocery stores.

2023 marked a very soft year for alcohol consumption, with declines across beer, wine, and core spirits (excluding RTDs). Wine was hit exceptionally hard, likely due in part to rising unemployment among affluent consumers and the cautious sentiment among older consumers.