Consumers Are 'Trading Down,' Buying Less, Commerce Signals Data Shows

Commerce Signals, a TransUnion Company, released data on Friday analyzing how inflation affects discretionary and non-discretionary spending by consumers.

As inflation rises, consumer spend on discretionary items like electronics and sporting goods fall. The data shows just less than 13% growth for discretionary spending in July vs. 16% growth for non-discretionary items.

“Inflation doesn’t cause discretionary spend to decline, but they are related,” said Nick Mangiapane, CMO at Commerce Signals. “Purchases at food stores are up 13%. Of that, about 10% is from increased transactions. Only 3.5% is from the price of the item.”

For Commerce Signals data to show that food costs are only up 3.5% when the federal government’s Consumer Price Index says food purchases for homes rose 13%, means that people are “trading down,” he said.

Consumers are buying less or purchasing hamburger instead of steak. Some are opting to purchase generic goods or private-label items.

Procter & Gamble CFO Andre Schulten during the company’s earnings call in July, warned of “some resurgence" of shoppers buying cheaper store brand items in some categories. Private-label brands in Europe are stronger, Schulten said.

The data from Commerce Signals, a source of credit and debit card spend data, with insight into credit and debit spending for 40 million U.S. households, also shows that travel is up significantly--dominated by consumers spending on airline tickets, mostly due to higher prices. Airline travel has seen the highest purchase growth, up 34.9% in July. Most of that increase is due to higher average ticket prices--more than 28.6%.

Underperforming categories include electronics and clothing, which are both down about 2% in July vs. a year ago.

When asked how advertisers should design strategies based on this data, Mangiapane said focus on value. “The good news is consumer spending is not declining,” and expect value and higher-end brands will continue to spend, where middle brands might pull back a bit.

“No one wants to cut an ad budget that drives value,” he said.

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