Americans Remain Reluctant Spenders

According to the findings of McKinsey’s latest Consumer Sentiment Survey, because inflation-adjusted median household income has dropped over the past few years, consumers are feeling reluctant to increase spending and are instead remaining thrifty. While things aren’t getting worse, they’re not getting much better either, says the report. Consumer morale, although stable, remains stubbornly low.

Since the system is so heavily dependent on consumer spending, much depends on the level of confidence Americans have about their jobs, their cash flow, the value of discretionary spending, and the strength of the overall economy.

The latest report showed that many aspects of consumer sentiment indicated marked improvement. However, things have either plateaued or gotten worse. 39% of consumers are still worried about losing their jobs and 40% of the consumers surveyed said they are coping with the challenge of living paycheck to paycheck, up from 31% in 2012.

The significant economic pressure that families earning less than $75,000 a year feel has caused many of them to make spending adjustments in order to make ends meet. Roughly 40% of these households say they are making changes, including cutting back and delaying purchases, as compared with 22% of those in households earning at least $150,000 a year. Americans at all income levels have yet to return to their prerecession positive feelings about the country’s economy.

Feelings Of Economic Pressure (% Of Respondents; Sept. 2014)


Consumers Agreeing or Strongly Agreeing

Optimistic about country’s economy


Decreased ability to make ends meet


Living paycheck to paycheck


Somewhat worried about losing job


Not making some purchases because of uncertainty


Source: Mckinsey, September 2014

While the number of consumers cutting back on spending has stabilized, Americans are still pinching pennies. Decreasing purchases of high-end brands and doing more one-stop shopping to reduce the number of trips are just as popular as they were last year, with 40% of consumers saying they have cut their spending over the past 12 months, says the report. And, 55% of Americans say they continue to look for ways to save money, including paying more attention to prices, using coupons more often, shopping around to get the best deals, and buying more items in bulk.

Consumers are not returning to higher-priced options. Nearly three-quarters say they do not intend to go back to purchasing more expensive brands. One-third of Americans no longer prefer the more expensive brand, having realized that the cheaper product offers better value for the money, and is of higher-than-expected quality. Another 39% of Americans say they would like to buy the more expensive brand, but that doing so isn’t worth it.

The product categories in which consumers are most likely to trade down include cosmetics, over-the-counter medicines, household cleaning products, frozen vegetables, and cereal. On average, 55% of those who trade down say they have switched to private labels, with several exceptions. In the beer and cosmetics categories, just 18% and 26% of consumers, respectively, trade down to private label. The remaining consumers are trading down to less expensive branded products. However, says the report, in wine, beer, and skin care, some consumers are actually trading up.

48% of American consumers say they have spent more of their household budget online in the past 12 months; 34% have done more shopping at dollar stores, and 32%, more at club stores. Momentum here continues, since most consumers report more positive experiences than they expected in online and club stores.

Behavioral Expectations For Next 12 Months (% Net Expectations Next 12 Months)


% Decreasing

% Increasing

Shop at dollar stores



Shop at mass merchants



Use internet to compare prices



Purchase private label/store brands



Compare prices while shopping



Shop at club stores



Use internet to buy products



Go out to eat



Purchase customized high-end products



Purchase high end brand



Source: Mckinsey, September 2014

Multiple years of austerity have left consumers with altered views about spending. Almost 40% say they will probably never go back to their prerecession approach to buying. 29% say they now have new attitudes and values about spending, up from 17% in 2010. An additional 24% claim that their opposition to increased spending is the result of a change in their economic situation.

In addition to the broad analysis of the American population, says the report, there are four key groups whose spending behavior and attitudes differ in important ways from the general population’s.

  • Hispanic households (there will be an additional 7 million by the year 2020, while all other ethnicities combined will add only 5 million) are more frugal than the general population because of greater insecurity about personal finances. Just over half of Hispanics are worried about losing their jobs, versus 39% of all Americans. Hispanics are also twice as likely to have participated in the food-stamp program, or SNAP, in the past 12 months. Paradoxically, says the report, Hispanics are more optimistic than the average about the economy.
  • Millennials are a critical group to understand, since collectively they will spend three times more in most household categories in 2020 than they do currently. In comparison with the general population, 24–34 year olds are more affected by paycheck cycles and are more involved in money-saving behavior, such as buying both in bulk and in smaller- pack sizes to spend less. They also pay more attention to prices, use more coupons, and shop around more to get the best deals. Overall, they are 15% more likely than the general population to cut back on spending. Many of them expect to return to their old spending levels soon but want to pay off debt and build savings first.
  • Baby boomers (age 55–74), unlike Millennials and Hispanics, have been slow to adjust their behavior. Even though they are just as concerned about the economy and their financial well-being as the general population, boomers do somewhat less penny-pinching. 36% say they have cut back on spending, versus 40% of Americans overall. Nor have they changed their eating or trading-down behavior very much. Although boomers understand the value of store brands and have slightly better-than-average impressions of them, they are 30% less likely to switch to cheaper brands.
  • Low-income consumers, not surprisingly, are struggling financially and making every effort to save money. By 2020 their spending power will decline by 5% relative to today. These consumers are 50% more likely than the average to live paycheck to paycheck, and 30% say they are having a really hard time making ends meet, compared with 17% of the general population. Forty-three% have participated in the SNAP program in the past 12 months.

Cautious spending behavior is the new normal, concludes the report, and is unlikely to change in the near future. American consumers continue to cut back on spending by delaying purchases, trading down to lower-priced brands, and eating more meals at home. Results vary somewhat by different demographic segments. To win market share and create successful new products, consumer-packaged-goods companies need to look at consumers by cohort and understand where there are exceptions to rules about cautious spending.

The report was presented by Anne Martinez, a specialist in McKinsey’s Stamford office, Rukhshana Motiwala, a senior expert in the New York office, and Ali Sher, a consultant in the Chicago office.

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1 comment about "Americans Remain Reluctant Spenders".
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  1. Douglas Ferguson from College of Charleston, December 18, 2014 at 8:10 a.m.

    When people are underemployed, they cut back. The job recovery never happened, but we pretend that it did. The employment rate for minorities is a national shame, but the journalists focus on the number of total jobs added, to keep things looking rosy.

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