Anna's Deep Dives

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The world's economy presents a complex picture. People everywhere feel its effects. Prices change. Job markets shift. These changes touch daily lives. They alter how people spend their money. This report looks at these spending trends. It explores how individuals navigate uncertain economic times.

Setting the Stage: The Modern Landscape of Economic Uncertainty

In recent years, economic landscapes have been quite unsteady. The year 2023 saw prices climb worldwide. In the United Kingdom, the inflation rate reached 2.5 percent. Countries in the Eurozone experienced record high inflation. Rising living costs and energy prices fueled this increase.

Looking ahead to 2025, India’s economy showed potential for growth. Forecasters predicted its Gross Domestic Product (GDP) would grow between 6.5 percent and 6.7 percent. Strong demand from consumers powered this outlook. However, new tariffs on exports to the United States created worries. These tariffs stood at 10 percent. An additional 16 percent in potential tariffs loomed. This meant total tariffs could reach 28.2 percent. Such a rise could trim India's GDP growth by 0.1 percent to 0.3 percent.

The fashion industry also navigated a tough climate. Revenue growth slowed. Only 20 percent of fashion leaders expected conditions to improve in 2025. Shoppers watched prices closely. They demanded more affordable clothing and accessories. This price sensitivity made the market difficult for fashion businesses.

In the United States, people’s confidence in the economy fell. The consumer confidence measure dropped to 86.0. This was its lowest point since the COVID-19 pandemic began. Worries about rising prices and tariffs affected how people viewed jobs and their income. Nearly 32.1 percent of consumers expected fewer jobs in the months ahead. This level of anxiety was similar to what people felt during the Great Recession. President Trump's proposed tariffs, including a 145 percent tax on certain Chinese goods, added to these fears about slow economic growth. By March 2025, overall consumer confidence hit a 12-year low. A University of Michigan survey showed a 10 percent drop in consumer sentiment from February to March 2025.

The travel industry felt the pinch too. Economic downturns made 67 percent of travelers think twice about planning overnight trips. Many people chose shorter trips. They opted for budget-friendly destinations. As prices for travel went up, this caution grew. This change had a clear effect on the travel sector.

Retail sales figures in the U.S. painted a mixed picture for 2025. Sales rose by a small 0.2 percent in February. This followed a 1.2 percent drop in January. Despite this small rise, it was below the expected 0.6 percent increase. Many stores lowered their sales forecasts. They cited concerns about inflation. About 66 percent of consumers who live paycheck to paycheck said they planned to cut spending on non-essential items. Even large retailers noticed this shift; 84 percent of Walmart customers reported cutting back in at least one spending area.

In Canada, U.S. tariffs prompted 80 percent of consumers to change their financial plans. More than 76 percent of Canadians felt the economy hurt their financial well-being. To get ready for rising costs, 66 percent of Canadians planned to reduce their spending.

Global economic indicators reflected these widespread pressures. In early 2025, 70 percent of Americans reported feeling the effects of inflation. This was after U.S. inflation had peaked at 8.71 percent in 2022, then fell to 6.9 percent in 2023, with projections for 5.8 percent in 2024. The United Kingdom saw its inflation hit 11.1 percent in October 2022. This prompted households there to save more, about 6 percent of their disposable income. This amounted to an extra £54 billion in savings annually.

The United Nations predicted global economic growth would be just 2.8 percent in 2025. The U.S. economy was expected to slow to 1.9 percent growth. Geopolitical conflicts and trade tensions posed risks to this outlook. Consumer spending in the U.S. might grow by 2.9 percent in 2025. However, it could fall to 1.4 percent in 2026. In Vietnam, 63 percent of consumers expressed worries about inflation. They planned to spend more on essential goods from trusted brands. These global shifts show people adapting to ongoing economic uncertainty.

The Paradox: Why Consumer Spending Has Been More Resilient Than Expected

Despite a backdrop of economic worry, consumer spending showed surprising strength. Several factors explain this resilience. People continued to spend, even when confidence levels suggested they might pull back.

One area of steady spending was pet products. Annual spending on pet food and supplies reached $117 billion. Pet ownership itself grew. By 2024, 66 percent of U.S. households owned a pet. This shows that consumers often view pet-related expenses as essential. They protect this spending even in tight financial times.

Visa's report for the second quarter of 2025 confirmed this robust spending. Spending remained strong across all types of consumers. Business leaders noted no signs of weakness. Strong employment rates helped support this continued spending. Both spending on wants and needs showed strength. Affluent consumers particularly drove this trend. Mastercard also reported a 1.4 percent increase in spending in March 2025. This occurred even though the consumer confidence index was at 92.9, a relatively low level.

Retail trends also highlighted a focus on essential purchases, yet showed overall activity. Sales at small businesses rose 3.2 percent in April 2025. This suggests consumers still prioritized necessary purchases from local merchants. The U.S. economy added 151,000 jobs in February 2025. The unemployment rate held at 4.1 percent (another source mentions 4.2 percent in 2025). This relatively low unemployment provided many people with the purchasing power to keep spending.

A ConsumerWise survey revealed a split in consumer sentiment. While 50 percent of consumers worried about rising prices, 46 percent felt optimistic. Even with low overall confidence (the U.S. index fell from 93.9 to 86.0 in early 2025), spending stayed steady in some areas. About 53 percent of consumers still bought items they valued. Many households held substantial cash reserves, totaling $8.7 trillion. However, high borrowing costs did increase financial stress for some.

Spending patterns also differed by age. Younger consumers, like Gen Z and millennials, tended to spend more on experiences. Older individuals often spent less. In the travel sector, demand for budget-friendly destinations remained high. More U.S. tourists visited Europe. For instance, arrivals in Spain from the U.S. increased from 4 percent of total tourists in 2019 to 5 percent in 2023. This shows a willingness to adapt travel plans rather than eliminate them entirely. Consumers demonstrated a capacity to seek value while still participating in the economy.

Defining Key Concepts: Inflation, Consumer Confidence, Discretionary vs. Essential Spending

To understand consumer behavior, we must first understand some key ideas. These concepts help explain the choices people make with their money.

Inflation is the rate at which prices for goods and services rise. When inflation is high, money buys less. This reduces a person's purchasing power. For example, the inflation rate in the U.S. was 2.4 percent as of September 2024. A study found that 85 percent of consumers changed their spending habits because of inflation. Many people chose cheaper alternatives. Others bought fewer items. In the UK, inflation reached 2.5 percent in 2023. The Eurozone saw record high inflation during that period. High inflation forces people to make tough choices. For instance, about 75 percent of consumers reported "trading down" to cheaper options for food. Among low-income households, 51 percent cut back on items like meat and dairy.

Consumer Confidence measures how optimistic or pessimistic people feel about the overall economy. It also reflects their personal financial prospects. When consumer confidence is high, people are more likely to spend money. When it is low, they tend to save more and spend less. In April 2025, the U.S. Consumer Confidence Index dropped to 86.0. This was its lowest level since May 2020. Low confidence often stems from worries about income, job security, and the future of the economy.

Discretionary Spending versus Essential Spending refers to the types of purchases people make. Essential spending covers needs. These are things like food, housing, healthcare, and basic transportation. People must buy these items to live. For example, in Australia, spending on essential categories like insurance and utilities showed increases of 8.6 percent and 7.1 percent respectively, as consumers prioritized these necessities. Pet food, with annual spending reaching $117 billion, is considered essential by many of the 66 percent of U.S. households that own pets.

Discretionary spending, on the other hand, is for wants. These are non-essential goods and services. Examples include vacations, entertainment, luxury items, and dining out. When money is tight, people often cut discretionary spending first. Reports showed that about 67 percent of consumers lived paycheck to paycheck. These individuals focused on necessities. As a result, discretionary spending declined overall. In India, this distinction is stark. About 90 percent of the population cannot afford many non-essential items. The wealthiest 10 percent of Indians account for two-thirds of the country's discretionary spending. During uncertain times, consumers often redefine what they consider essential versus discretionary. They adapt their budgets to meet economic pressures.

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Table of Contents

(Click on any section to start reading it)

I. Introduction: The Consumer in the Crosscurrents 

• Setting the Stage: The Modern Landscape of Economic Uncertainty 

• The Paradox: Why Consumer Spending Has Been More Resilient Than Expected 

• Defining Key Concepts: Inflation, Consumer Confidence, Discretionary vs. Essential Spending 

II. The Macroeconomic Backdrop: Forces Pressuring Consumer Wallets 

• Inflation's Grip: Tracking Price Increases Across Key Categories (Food, Energy, Housing) 

• The Role of Monetary Policy: Interest Rates, Borrowing Costs, and Access to Credit 

• Labor Market Dynamics: Employment Levels, Wage Growth, and Job Security Perceptions 

• Global Factors: Supply Chain Disruptions, Geopolitical Instability, and Tariff Impacts 

• Historical Context: Comparing Current Uncertainty to Past Economic Events (e.g., 2008 Crisis, Stagflation Periods)

III. The Consumer Mindset: Confidence, Sentiment, and Behavioral Shifts 

• Measuring the Mood: Understanding Consumer Confidence Indices (Conference Board, U. Michigan) and Recent Trends 

• The Sentiment-Spending Gap: Exploring Why Negative Feelings Haven't Always Translated to Reduced Spending 

• Psychological Impacts: How Uncertainty Influences Decision-Making (e.g., Risk Aversion, Value Focus, Delaying Purchases) 

• The Information Age: Media Influence and the Formation of Economic Expectations 

• Generational and Income Divides: Varying Responses to Economic Pressures

IV. Anatomy of Spending Shifts: Where the Money is (and Isn't) Going 

• The Squeeze on Essentials: Prioritizing Needs Amidst Rising Costs 

• The Discretionary Spending Spectrum: Cutbacks and Trade-Downs: Areas Facing Reduced Spending (e.g., certain retail goods, dining out) 

• Selective Splurging & Resilient Categories: Travel, Experiences, and "Little Treats" 

• The Quest for Value: The Rise of Discount Retailers, Private Labels, and Promotional Strategies 

• Channel Evolution: E-commerce Growth, Social Commerce Trends, and the Role of Brick-and-Mortar 

• Financial Health Check: Trends in Savings Rates, Debt Levels (Credit Cards, Loans), and Financial Vulnerability

V. Industry Focus: Sector Impacts and Business Strategies 

• Retail Realignment: Adapting to the Value-Conscious and Omni-Channel Shopper 

• Hospitality and Travel: Navigating Pent-Up Demand vs. Budget Constraints 

• Big-Ticket Items: Challenges in the Automotive, Housing, and Durables Markets 

• CPG and Grocers: Managing Inflation Pass-Through and Brand Loyalty 

• Strategic Adaptations: How Businesses Are Responding (Pricing, Marketing, Loyalty Programs, Supply Chain Adjustments, AI/Data Analytics)

VI. Looking Ahead: Future Outlook and Concluding Thoughts 

• Economic Scenarios for 2025 and Beyond: Potential Paths for Inflation, Growth, and Employment 

• Long-Term Behavioral Shifts: Will Current Trends Endure Post-Uncertainty? (e.g., Value Focus, Digital Adoption) 

• The Evolving Consumer Profile: Increased Intentionality, Focus on Value and Experience 

• Policy Implications: Potential Government and Central Bank Responses 

Baked with love,

Anna Eisenberg ❤️