American Shoppers Spending Despite Misery

This weekend, businesses will overwhelm customers with “Black Friday” and “Cyber Monday” bargains, sending America into yet another consumerism frenzy.

Consumer Sentiment Versus Spending Reality

Bosses will be keeping a close eye on how much Americans are ready to spend, even more than usual. This month, the University of Michigan’s consumer sentiment index dropped to a level barely above that of June 2022, when it hit its lowest position since recording started in 1952 (see chart, top panel).

The majority of Americans are anxious about inflation and depressed about their employment prospects. They are therefore informing pollsters that they intend to reduce spending.

Spending Data Tells a Different Story

But in reality, they have been acting in the opposite way. According to data issued by the US Census Bureau on November 25th, spending at restaurants and retail establishments increased by 1% year over year in September after accounting for inflation, hardly indicating that consumers are cutting back (see chart, bottom panel).

Companies are having difficulty determining how long the discrepancy between consumers’ pessimism and their resilient spending may last. They have grounds to be hopeful for the time being.

Wealth Gap Shapes Consumption

Consumer sentiment statistics treat both wealthy and impoverished Americans equally. However, their spending is very different. America’s stock market is still high despite recent volatility, which encourages consumption by the wealthy who hold shares.

After declining in the first half of the year, LVMH, the largest seller of luxury goods in the world, saw a 3% increase in sales in America over the three months from July to September compared to the same time in 2024. The massive consumer goods company Unilever claimed that its third-quarter sales rise in America was driven by high-end goods.

Pressure on Lower-Income Consumers

However, there has been more pressure on poorer consumers. Both Home Depot, a home improvement retailer, and the restaurant giant Chipotle have reported a decline in sales among lower-class consumers in recent months.

Even still, even Americans with lower incomes have been spending more overall, albeit more slowly. According to data from the research firm Numerator, people making more than $100,000 spent 4.3% more in the third quarter compared to the same period last year, while people making less than $60,000 spent 3.8% more.

Small Luxuries Lift Spirits

Some stretched consumers are changing where they purchase in order to find better value. T.J. Maxx and other stores that cater to the frugal have seen an increase in sales. The “lipstick effect,” named after beauty tycoon Leonard Lauder, who saw that sales of the product increased during a recession, is a pattern where other customers seem to be spending money on tiny indulgences to raise their spirits.

Perfume seems to be the preferred indulgence these days, more so than makeup. Sales of mass-market fragrances in America increased by 17% year over year for the nine months from January to September, according to statistics from another research organization, Circana. “I am not sure if we should refer to it as the “smell pleasant fragrance effect” or the “lipstick effect,”The CEO of the massive beauty company L’Oréal, Nicolas Hieronimus, recently wondered.

Holiday Season Outlook

In the weeks preceding Christmas, retailers will be hoping that customers would continue to buy despite their pessimism. Many analysts are still optimistic. According to Shannon Grein, an economist at the bank Wells Fargo, “a need for warmth will help keep overall holiday sales elevated.”

Nominal retail expenditure in November and December will be 3.5–4% higher than the previous year, comfortably above inflation, according to her and her colleagues’ predictions. However, Americans’ spending may eventually catch up to their emotions.

Frequently asked questions

1. Despite spending more, why do American consumers feel depressed?

Concerns about inflation, job security, and the overall economy are the main causes of the low consumer morale. However, because income growth, savings, and asset wealth—particularly among higher-income groups—continue to sustain consumption, actual expenditure is still high.

2. How do all income groups spend their money?

No, Americans with higher incomes are spending more freely thanks to a robust stock market and growing wealth. Despite increased pressure, consumers with lower incomes are nonetheless growing their spending, albeit more slowly.

3. What accounts for the discrepancy between customer attitude and purchasing patterns?

Spending power varies, but sentiment surveys treat all consumers identically. A significant portion of consumption is driven by wealthier households, which conceals financial strain on poorer households.

4. How are customers changing the way they spend their money?

Many consumers are moving away from expensive goods and toward little indulgences like perfumes and cosmetics, or they are trading down by buying at bargain stores like T.J. Maxx.

5. What do retailers anticipate this Christmas season?

Despite negative sentiment, analysts predict that holiday retail sales in November and December will increase 3.5–4% year over year, exceeding inflation.

Conclusion

Despite their pessimism, American consumers’ wallets reveal a different picture. The retail economy is still supported by robust expenditure, which is mostly driven by wealthier households and modest pleasure purchases.

Lower-class consumers are showing signs of weakness, although overall demand is still strong. However, the gap between American sentiment and spending may eventually close.

Disclaimer:
This content is for informational purposes only and does not constitute financial, investment, or economic advice. Opinions and data are based on publicly available sources and may change over time.