Consumer Inflation Sentiment Report

The Cautious Spender: US Consumers Now Think First, Spend Second

February 2024

With lowering inflation, consumers are spending nearly 7% more on retail year over year, showing a renewed confidence in spending. Consumers’ end-of-year shopping habits detail how they are spending slightly more than they were a year ago, yet remain strategic about where and how they spend. The cost of an item, whether on sale or simply offered at a lower price, was a strong factor driving shopping decisions. When it came to buying gifts for others, 55% of consumers had decided what to buy for most or all their gifts before going out to shop.

Consumer retail spending rises nearly 7% year over year in December, marking a lift in shoppers’ confidence due to lower inflation.
Consumers’ expectations for what they are going to pay for items in the retail sector is increasingly optimistic.
When shopping for gifts for others, 55% of consumers plan their spending in advance.


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    Higher inflation the last few years has translated into greater worries for consumers. Many made adjustments — often downgrades or pullbacks — to their shopping and spending habits. With inflation lowering for consumers and retailers, consumers feel slightly more comfortable spending, albeit strategically.

    Consumers are spending nearly 7% more on retail year over year, illustrating this renewed confidence and, potentially, an ability to afford a little more. For example, 69% of shoppers reported cutting back due to price increases in January 2023, decreasing to 63% this year.

    Consumers’ end-of-year shopping habits detail how they spent slightly more than one year ago. Still, they remain strategic about where and how they spend. The cost of an item, whether on sale or at a lower price, was a decisive factor driving shopping decisions. When buying gifts for others, 55% of consumers had decided what to buy for most or all gifts before going out to shop.

    This report is the 19th installment in the “Consumer Inflation Sentiment” series. For “Consumers Cautiously Spend More Amid Lower Inflation,” PYMNTS surveyed 4,963 United States consumers between Jan. 2 and Jan. 12 to examine their end-of-year spending habits and what they might reveal about retail spending in 2024.

    Key Findings

    Consumer retail spending rose nearly 7% year over year in December, marking a lift in shoppers’ confidence due to lower inflation.1

    Consumers are dipping into their pocketbooks once again. Retail sales picked up in the second half of last year, with sales in December 2023 up 6.8% from the previous year, adjusting for price increases. The retail segments that experienced the highest real increases were health and pharmacy stores and sporting and hobby stores, at 3.3% and 3%, respectively. These numbers suggest consumers are prioritizing spending on health and wellness and leisure time.

    Consumers seem able to afford a little more and are more comfortable spending than they were a year ago. In January 2024, 63% of shoppers reported cutting back due to price increases, down from 69% last year. By the same token, 51% of shoppers said they switched to different merchants to save money. A year earlier, 56% of consumers shopped around to save their pennies. Consumers are spending more, albeit cautiously, and they are strategic about how and where they spend.

    Consumers’ price expectations in the retail sector are increasingly optimistic. The share of consumers expecting higher retail prices year over year dipped from 64% in January 2023 to 57% in January 2024.

    Lower inflation encourages consumers to spend more, while retailers feel less inflationary impact on costs. The year wrapped with lower overall inflation, at 3.4% in December 2023. In the same period, retail inflation was just 0.2%, marking 20 consecutive months of lower inflation in retail than the Consumer Price Index average. Personal care products experienced higher inflation-based price hikes in the retail industry compared to the average retail product. With supply chain issues easing, the retail sector may soon see inflations’ impact on the clothing and apparel segment normalize.

    Lower inflation encourages consumers to spend more, but they planned their year-end spending and were most strategic about splurging on gifts.

    Although consumers demonstrate a modest but renewed confidence in spending, the continued negative impact of inflation on wages may tamp their optimism. One year ago, 83% of consumers said their wages had not kept up with inflation. Eighty-two percent said the same in January 2024. This point may help explain there is a modest reduction in the share of consumers saying they are cutting back on discretionary spending and seeking out cheaper merchants.

    Consumers’ perceptions of how much their wages grew strongly influenced how they spent at the end of 2023. Those whose wage growth at least matched inflation were 67% more likely to have increased their spending during the holidays than those who felt wages had not kept up. Those whose paychecks matched inflation were also twice as likely to have bought more gifts in 2023 than the year before. If consumers’ end-of-year shopping habits reveal anything, it is that inflation is becoming less of a deterrent in how comfortable they are spending.

    Consumers are spending but are doing so thoughtfully and with a bit of planning. At the end of 2023, 77% of consumers spent money on gifts for others and themselves. But before they made those purchases, 56% of consumers said they had already decided what to buy for most or all purchases before going shopping. This sentiment suggests that going into a new year, consumers are more strategic with spending their money.

    The festive season was more of a spending season this year than last. Thirty-five percent of shoppers increased spending in 2022, and 28% said they bought more gifts than the previous year. Data suggests consumers feel more confident with their shopping habits in the new year.

    Consumers are scouting for good prices because they plan their spending, especially when considering gift purchases.

    When treating someone else, consumers plan their purchases and spending. For end-of-they-year gift shopping, 52% of consumers said they paid more attention to prices than when they made other everyday, non-holiday purchases.

    Consumers strategically shopped for gifts, opting for a less expensive option over the draw of a sale. Consumers shopping for gifts were more than twice as likely to cite price as the most significant factor when deciding what gift to buy than if the item had a discount.

    For 25% of consumers, price was the most influential driver behind where they completed purchases. For year-end shoppers, 29% said price was the most influential factor in deciding what to buy. Traditional sales drew in other shoppers, with 14% saying promotions or discounts were the most influential in determining where they purchased a gift.

    These shifts in shopping habits suggest that retailers must continuously provide competitive prices rather than rely on sales to attract customers. Overall, 61% of consumers said prices played a role when deciding what gifts to buy, while 43% said discounts were a consideration. When the price is right, the strategic consumer strikes.

    Conclusion

    Consumers’ end-of-year shopping habits show their willingness to spend more. Their increased spending habits may continue into 2024, signaling a positive lift for retail sales overall. While consumers are spending slightly more, they are doing so cautiously and with strategic planning. They are looking for the lowest prices on gifts, and they are likely to do the same on everyday items for themselves.

    Consumers feel a lessening weight of inflation on their wages, too. One year ago, 83% of consumers said their wages had not kept pace with inflation, while 82% said the same in December 2023. This lingering impact on wages may be a moderating factor in their willingness to spend in the months ahead. Nonetheless, consumers are beginning to feel the 20 consecutive months of lower retail inflation in a meaningful way.

    Methodology

    Consumer Inflation Sentiment: Consumers Cautiously Spend More Amid Lower Inflation,” produced independently by PYMNTS Intelligence, analyzed consumers’ end-of-year shopping decisions regarding prices and inflation and where and how they shopped. We surveyed 4,963 U.S. consumers between Jan. 2 and Jan. 12. The sample was balanced to match the U.S. adult population in key demographic variables. Our respondents’ average age was 48, 51% identified as female and 38% annually earned more than $100,000.


    Read the January “Consumer Inflation Sentiment: Persistent Inflation Rekindles Consumer’s Interest in Secondhand Markets” and other previous editions of the series for more.


    1. [This report looks at core retail sales, excluding food, motor vehicles and gasoline.]

    About

    Ingo

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multilingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    The PYMNTS Intelligence team that produced this report:
    Managing Director: Aitor Ortiz
    Scott Murray SVP and Head of Analytics
    Marcos Muñiz Senior Analyst
    Anna Sofia Martin Senior Writer


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