Confirmed: US "Downgrading" in Consumer Spending

The American consumer market is undergoing a transformation. Both high-income and low-income consumers have exhibited a significant downgrade in their consumption behaviors.

Recently, a report indicated that the purchasing power of high-income consumers in the United States remains strong, while that of low-income consumers appears weak. However, consumption for both groups is shifting towards lower-tier products or services, a phenomenon known as "consumption downgrading."

Furthermore, as the prices of essential items such as food, insurance, and housing remain higher than pre-pandemic levels, consumers are generally beginning to cut back on spending, and retailers are resorting to discounts to lure customers back.

Consumption downgrading has spread to high-income groups.

Looking at Goldman Sachs' consumption basket, middle-income consumers are outperforming high-income consumers, while low-income consumers continue to face increasing pressure. Goldman Sachs analyst Caitlin Burrows noted that the foot traffic to grocery stores targeting high-end consumers continues to grow: in August, the year-over-year growth in foot traffic was 8.7%, with a positive year-over-year trend for the entire year of 2024, and the foot traffic increased by double digits compared to 2022.

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At the same time, while low-income consumers maintain stable demand for essential items, their spending on discretionary goods such as luxury items and cosmetics is relatively weak. Feeling the pressure, low-income consumers are increasingly turning to discount retailers like Walmart, Target, and Sam's Club.This phenomenon of consumer downgrading is present among both high-income and low-income consumers. For instance, Nordstrom's sales are flat or declining, while Nordstrom Rack's sales are on the rise.

The latest inflation data for September have exceeded expectations across the board, with persistent inflation impacting middle and low-income households. A Goldman Sachs report further confirms that the slump in consumption has spread to wealthier families.

U.S. consumers are "downgrading" their consumption, prompting retailers to offer discounts and promotions.

In recent years, U.S. consumers have been severely affected by inflation, with their cost of living continuously increasing.

To cope with this situation, more and more Americans are starting to reduce spending on non-essentials (such as home furnishings or expensive sneakers) and focusing on necessities.

This shift in consumer behavior has had a significant impact on the retail industry. In order to attract customers, retailers are resorting to the "trump card" of price reductions and promotions. Reports indicate that companies ranging from home furnishings giant IKEA to sneaker giant Nike have begun to lure customers back through discounts.

"This year, global consumers have been affected by inflation, with everyone paying more for housing, food, and energy," said IKEA CEO Jon Abrahamsson Ring. To drive demand, IKEA has reduced product prices by about 10% globally this fiscal year, marking the company's largest annual price reduction in history.

Analysts believe that although inflation in the United States has eased somewhat this year, many consumers still feel the pressure due to higher prices for necessities such as food, insurance, and housing compared to pre-pandemic levels. This has made consumers more cautious in their spending, preferring to choose products with relatively lower prices.