Shopping: Spending Growth Slowing Among All Income Groups

Why it is the topic trending:

• Economic Indicator: Consumer spending is a key indicator of economic health, and a slowdown across all income levels signals potential concerns about economic growth.

• Shift in Spending Patterns: The report highlights a shift from discretionary to non-discretionary spending, reflecting the impact of inflation on essential goods and services.

• Financial Health Concerns: While the report indicates a generally sound financial position for most consumers, it also points to emerging pressures for some lower-income households.

• Data-Driven Analysis: The findings are based on new research and data released by the Bank of America Institute, lending credibility to the reported trends.

Overview:

The article discusses new research from Bank of America (BofA) that reveals a deceleration in consumer spending growth across all income levels in the United States as of early May 2025. The report indicates a decline in spending on non-essential items since the beginning of the year, coupled with rising prices for essential goods like food and shelter. While the financial position of most consumers appears stable, the slowdown in spending, particularly among lower-income households, and an increase in minimum credit card payments suggest potential underlying economic pressures.

Detailed Findings:

• Spending Slowdown Across All Income Levels: Consumer spending growth is easing for all income groups.

• Decline in Non-Essential Spending: Spending on "inessentials" has been declining since the start of 2025.

• Cooling Transaction Growth: The growth in the number of consumer transactions has also slowed down, not just the rate of spending due to inflation.

• Pullback on Big-Ticket Discretionary Services: Consumers are reducing spending on larger discretionary items like airline tickets and lodging.

• Rising Costs of Nondiscretionary Items: Prices for essentials such as food and shelter continue to increase.

• Sticky Inflation in Essentials: Shelter and food metrics are showing more persistent price increases than the overall inflation rate.

• High Percentage of Income on Essentials: Essential spending is estimated to take up over 70% of a consumer’s paycheck.

• Rents Climbing: Rising rent costs are a significant expense for many consumers.

• Dipping Credit and Debit Card Spending: Spending via credit and debit cards is declining across all income groups, with the most pronounced dip among lower-income Americans.

• Weakest Spending Growth Among Lower-Income Households: Spending growth for lower-income households is notably weaker compared to other income groups.

• Soft After-Tax Wage Growth for Lower-Income Households: Lower-income households experienced a relatively small year-over-year after-tax wage gain of 1.5% in April, lower than the previous two years.

• Sound Financial Position for Most: Most consumers appear to be in a sound financial position, as evidenced by more consumers paying off their credit card balances monthly.

• Building Pressures for Some: There is an increasing share of households making only the minimum payment on their credit cards, indicating financial strain for a segment of consumers.

Key Takeaway:

The key takeaway from the BofA report is that consumer spending growth is slowing across all income levels in the U.S., driven by a combination of factors including easing overall inflation but persistent price increases in essential goods, a pullback on discretionary spending, and weakening after-tax wage growth, particularly for lower-income households, suggesting potential economic headwinds.

Main Trend:

Consumer Spending Deceleration Amid Inflationary Pressures: This trend describes the observed slowdown in the rate at which consumers are spending money, influenced by a complex interplay of factors including moderating overall inflation, but continued high prices for necessities, and a cautious approach to discretionary spending.

Description of the Trend:

The "Consumer Spending Deceleration Amid Inflationary Pressures" trend reflects a cooling off in the robust consumer spending that was observed in previous periods. While overall inflation might be easing, the prices of essential goods and services like food and shelter remain elevated, consuming a larger portion of household budgets. This leaves less room for discretionary spending, leading consumers to cut back on non-essential items and big-ticket services. Furthermore, for lower-income households, slower wage growth exacerbates this situation, contributing to a more pronounced slowdown in their spending. This trend signals a potential shift in the economic landscape, where consumer demand might be weakening due to sustained price pressures and tighter household budgets.

What is Consumer Motivation (Detailed Description):

Consumer behavior in this context is driven by a combination of factors:

• Budget Constraints: Rising prices for necessities like food and shelter are forcing consumers to allocate more of their income to these essential items, leaving less for discretionary spending.

• Cautiousness About the Future: The slowing spending could reflect increased economic uncertainty and a more cautious approach to making larger purchases or engaging in discretionary services.

• Maintaining Financial Stability: The increase in consumers paying off their credit card balances suggests a desire to maintain financial health and avoid accumulating debt. However, the rise in minimum payments also indicates that some are struggling to do so.

• Response to Inflation: Consumers are reacting to the persistent high prices of essential goods by prioritizing these needs and reducing spending in other areas.

What is Driving Trend (Detailed Description):

Several economic factors are driving the slowdown in consumer spending:

• Easing Overall Inflation: While still present, the rate of overall inflation might be moderating, leading to a slower growth rate in the total amount spent.

• Persistent Inflation in Essentials: Prices for food and shelter remain stubbornly high, squeezing household budgets.

• Cooling Transaction Growth: This indicates that consumers are not just spending less per transaction but are also making fewer purchases overall.

• Weakening Wage Growth for Some: Particularly for lower-income households, slower wage growth limits their ability to maintain previous spending levels, especially with rising costs.

• Potential Lagging Effects of Previous Economic Conditions: The slowdown could also be a delayed reaction to earlier periods of high inflation and economic uncertainty.

What is Motivation Beyond the Trend (Detailed Description):

Beyond the immediate economic pressures, some underlying motivations might be at play:

• Re-evaluation of Spending Priorities: Consumers might be re-evaluating their spending habits and prioritizing value and necessity over discretionary purchases.

• Increased Focus on Saving: Economic uncertainty could be prompting some consumers to increase their savings.

• Potential Shift in Lifestyle Choices: The slowdown in discretionary spending on things like travel could also reflect changing lifestyle preferences or a temporary pullback after periods of increased activity.

Description of Consumers Article is Referring to:

The article refers to American consumers across all income levels, with specific attention to the spending patterns of lower-income Americans.

• Age: The article does not specify age demographics.

• Gender: The article does not specify gender demographics.

• Income: The key finding is the slowdown in spending growth across all income levels, but the report highlights that lower-income households are experiencing the weakest spending growth and are facing greater financial pressure, as evidenced by the increase in minimum credit card payments.

• Lifestyle: The trends suggest a broad spectrum of lifestyles are being affected by the current economic conditions. Consumers across different income brackets are becoming more cautious with their spending, particularly on non-essential goods and services.

Conclusions:

The main conclusions from the BofA report are:

• Consumer spending growth is slowing in the U.S. across all income levels.

• This slowdown is evident in both the amount spent and the number of transactions.

• Spending on discretionary items like airline tickets and lodging is declining.

• Prices for essential goods like food and shelter remain high and are consuming a larger portion of household budgets.

• Lower-income households are experiencing the weakest spending growth and face increasing financial pressures, despite most consumers appearing financially sound overall.

Implications for Brands:

• Increased Price Sensitivity: Brands may face greater price sensitivity from consumers across all income levels.

• Focus on Value and Necessity: Products and services that offer clear value or cater to essential needs may fare better than discretionary items.

• Potential Decline in Demand for Luxury Goods and Services: Brands in the luxury sector might see a slowdown in demand.

• Importance of Understanding Consumer Sentiment: Brands need to closely monitor consumer sentiment and adapt their marketing and product strategies accordingly.

Implication for Society:

• Potential Indicator of Economic Slowdown: The slowdown in consumer spending could be an early signal of a broader economic slowdown or recession.

• Increased Financial Strain for Vulnerable Populations: Lower-income households are likely to be disproportionately affected by rising essential costs and slower wage growth.

• Impact on Employment and Economic Growth: Reduced consumer spending can have a ripple effect on businesses, potentially impacting employment and overall economic growth.

Implications for Consumers:

• Need for Budgeting and Financial Planning: Consumers may need to be more diligent with budgeting and financial planning to manage rising costs and potential income stagnation.

• Potential for Reduced Discretionary Spending: Consumers may need to cut back on non-essential purchases and services.

• Increased Focus on Value Shopping: Consumers might become more focused on finding the best value for their money.

Implication for Future:

• Monitoring Economic Indicators: It will be crucial to monitor consumer spending trends and other economic indicators to understand the trajectory of the economy.

• Potential for Policy Responses: If the slowdown in consumer spending persists or worsens, there might be policy responses aimed at stimulating economic activity.

• Adaptation by Businesses: Businesses will likely need to adapt their strategies to the changing consumer spending environment.

Consumer Trend (Name: Cautious Consumption):

• Detailed Description: This trend describes a shift in consumer behavior towards more cautious spending habits across all income levels, driven by concerns about the economy, persistent inflation in essential goods, and, for some, slower income growth. Consumers are becoming more discerning about their purchases, prioritizing needs over wants and potentially delaying or reducing spending on discretionary items and services.

Consumer Sub Trend (Name: Essential Prioritization):

• Detailed Description: This sub-trend highlights the increasing focus of consumers on allocating their budgets primarily towards essential goods and services such as food, shelter, and healthcare, due to rising costs in these areas. This leaves a smaller portion of their income available for non-essential or discretionary spending.

Big Social Trend (Name: Economic Uncertainty and Anxiety):

• Detailed Description: The slowdown in consumer spending reflects a broader societal trend of economic uncertainty and anxiety. Factors like inflation, potential recession risks, and concerns about job security can lead consumers to become more cautious with their finances and reduce their spending.

Worldwide Social Trend (Name: Global Inflationary Pressures):

• Detailed Description: While the article focuses on the U.S., many countries around the world are experiencing inflationary pressures. This suggests that the trend of slowing consumer spending due to rising costs of essentials and economic uncertainty could be a broader global phenomenon.

Social Drive (Name: Financial Security and Stability):

• Detailed Description: The underlying social drive is the desire for financial security and stability. In the face of economic uncertainty and rising costs, consumers are taking steps to protect their financial well-being by being more cautious with their spending and managing their debt.

Learnings for Brands to Use in 2025 (Bullets, Detailed Description):

• Emphasize Value and Affordability: Highlight the value proposition of your products and services, particularly their affordability and necessity.

• Focus on Essential Needs: If your offerings cater to essential needs, emphasize their reliability and importance to consumers.

• Be Mindful of Price Sensitivity: Understand that consumers are likely to be more price-sensitive and consider offering promotions or more budget-friendly options.

• Communicate Clearly About Value: Ensure your marketing clearly communicates the benefits and value consumers receive for their money.

• Monitor Consumer Sentiment: Stay attuned to evolving consumer sentiment and adapt your strategies accordingly.

Strategy Recommendations for Brands to Follow in 2025 (Bullets, Detail Description):

• Offer Value-Oriented Products and Services: Develop or emphasize product lines and services that provide strong value for their price.

• Consider Flexible Payment Options: Explore offering flexible payment options or financing to help consumers manage their spending.

• Focus on Customer Retention: In a cautious spending environment, retaining existing customers is crucial. Focus on loyalty programs and excellent customer service.

• Optimize Pricing Strategies: Carefully review pricing strategies to remain competitive while still maintaining profitability.

• Explore Opportunities in Essential Goods and Services: If applicable, consider expanding or focusing on offerings within the more resilient essential goods and services sectors.

Final Sentence (Key Concept) Describing Main Trend from Article:

The current economic climate is leading to a widespread deceleration in consumer spending as households across all income levels become more cautious in the face of persistent inflationary pressures and economic uncertainty.

What brands & companies should do in 2025 to benefit from trend and how to do it:

In 2025, brands and companies should adapt to the reality of slowing consumer spending by prioritizing value, affordability, and essential offerings while closely monitoring consumer sentiment and economic conditions. They can achieve this by:

• Conducting Value Analysis: Thoroughly analyze their product and service offerings to identify areas where they can enhance value for customers without necessarily lowering prices. This could involve improving quality, durability, or functionality.

• Offering Tiered Products/Services: Provide a range of options at different price points to cater to budget-conscious consumers while still offering premium choices.

• Strengthening Customer Relationships: Focus on building strong relationships with customers through excellent service and loyalty programs to encourage repeat business even when spending is tight.

• Optimizing Supply Chains: Look for efficiencies in their supply chains to potentially reduce costs and maintain competitive pricing.

• Communicating with Empathy: Acknowledge the economic pressures consumers are facing in their marketing and communications, fostering a sense of understanding and trust.

Final Note:

• Core Trend: Cautious Consumption: Consumers across all income levels are exhibiting more restrained spending habits.

• Core Strategy: Value-Driven Offerings: Focus on providing products and services that offer clear value and meet essential needs.

• Core Industry Trend: Potential Economic Slowdown Impact: Businesses need to prepare for a potentially slower economic growth environment due to reduced consumer spending.

• Core Consumer Motivation: Financial Prudence: Consumers are motivated by a desire to manage their finances carefully in the face of economic uncertainty and rising costs.

• Final Conclusion: The BofA report paints a picture of a consumer base becoming increasingly cautious with their spending. Brands and companies that understand this shift and adapt their strategies to prioritize value and affordability will be better positioned to navigate the evolving economic landscape.

Core Trend Detailed (Name: Cautious Consumption)

• Description: This core trend describes a discernible shift in consumer behavior across all income levels in the United States towards more restrained and deliberate spending habits. Driven by a confluence of economic factors, including easing overall inflation juxtaposed with persistent high prices for essential goods like food and shelter, coupled with concerns about future economic stability and, for some, slower wage growth, consumers are exercising greater caution in their purchasing decisions. This trend manifests as a reduction in discretionary spending, a more critical evaluation of value, and a prioritization of essential needs over wants, reflecting a broader sense of economic prudence and a potential anticipation of continued financial uncertainty.

• Key Characteristics of the Trend (summary):

  • Spending Reduction: A general decrease in the rate of spending growth across all income brackets.

  • Discretionary Spending Pullback: Consumers are notably cutting back on non-essential items and larger discretionary services.

  • Essential Spending Focus: A greater portion of household budgets is being allocated to cover the increased costs of necessities like food and shelter.

  • Increased Price Sensitivity: Consumers are becoming more aware of and reactive to price points, seeking value and potentially delaying non-essential purchases.

  • Financial Prudence: An inclination towards managing finances more carefully, evidenced by an increase in paying off credit card balances (for some) and a concerning rise in minimum payments (for others).

• Market and Cultural Signals Supporting the Trend (summary):

  • BofA Spending Data: The Bank of America Institute's report explicitly states a slowdown in consumer spending growth across all income levels.

  • Decline in "Inessential" Spending: The report highlights a specific decrease in spending on non-essential items since the beginning of the year.

  • Cooling Transaction Numbers: The reduction in the growth of transaction volumes indicates a fundamental shift in purchasing activity.

  • Persistent Inflation in Essentials: The ongoing rise in the cost of food and shelter, as indicated by the CPI data, reinforces the pressure on consumer budgets.

  • Weakening Wage Growth for Lower Income: The slower after-tax wage growth for lower-income households provides a clear economic rationale for their more pronounced spending slowdown.

• How the Trend Is Changing Consumer Behavior (summary):

  • Prioritization of Needs: Consumers are increasingly focusing their spending on essential goods and services, often at the expense of discretionary items.

  • Delayed or Foregone Purchases: Larger, non-urgent purchases and discretionary services like travel and entertainment are being postponed or eliminated.

  • Value Seeking: Consumers are more actively seeking out the best value for their money, potentially leading to increased comparison shopping and a shift towards more affordable alternatives.

  • Increased Budget Awareness: Households are likely paying closer attention to their budgets and making more conscious spending decisions.

  • Potential Increase in Savings (for some): While not explicitly stated as increasing across all groups, a general sense of economic caution might lead some consumers to prioritize saving where possible.

• Implications Across the Ecosystem (summary):

  • For Brands and CPGs: Expect increased competition based on price and value. Brands offering essential goods may see stable demand, while those selling discretionary items might experience sales declines. Emphasis on affordability and demonstrable value will be crucial in marketing.

  • For Retailers: Retailers may see a shift in sales towards necessities and value-oriented products. Those selling big-ticket discretionary items could face challenges. Strategies focused on competitive pricing, promotions, and highlighting value will be important.

  • For Consumers: Consumers will likely need to be more budget-conscious and prioritize their spending. They may need to delay or forgo some non-essential purchases and actively seek out the best value for their money. Financial planning and careful management of expenses will become more critical.

• Strategic Forecast: The trend of cautious consumption is likely to persist throughout 2025, especially given the continued uncertainty surrounding inflation, potential economic slowdowns, and the ongoing impact on household budgets. Brands and retailers will need to adapt their strategies to this new reality, focusing on providing value and meeting essential consumer needs. The strength and duration of this trend will depend on broader economic factors and any potential shifts in inflation and employment rates.

• Final Thought: The current slowdown in consumer spending reflects a period of economic adjustment where households across the income spectrum are reacting to persistent price pressures and uncertainty by adopting a more cautious approach to their finances, signaling a potential recalibration of consumer priorities and spending habits.

Source: https://www.pymnts.com/consumer-insights/2025/bofa-spending-growth-slowing-among-all-income-groups/