Emerging Economic Uncertainty Impacts Consumer Behavior in the US

The latest analysis from Bain & Company and Dynata highlights significant changes in the behavior of American consumers against a backdrop of economic uncertainty and potential price increases due to tariffs. This year has shed light on shifting consumer confidence across all income groups. The findings, derived from the Bain/Dynata Consumer Health Index, reveal a startling trend: as consumers grapple with fears of rising costs, their intentions to save are diminishing sharply, especially among upper and middle-income groups.

Historically robust savings habits are eroding. The overall intent-to-save score, which evaluates the savings behaviors of consumers, dropped by 5.1 points across income brackets during the latest assessment. Middle-income households, defined as those earning between $50,000 and $100,000 annually, reported a staggering decline of 10.2 points—marking their most significant fall in five years. On the other hand, the savings intent for upper-income households (earning over $100,000) fell by 8.3 points, which is the largest recorded decline since tracking began in January 2018.

The implications of these statistics are troubling. The reduction in savings intentions may suggest that consumers anticipate needing to save less because of expected price hikes. This is due in part to tariffs that could drive retail prices upward. Unlike their higher-income counterparts, lower-income Americans—those earning less than $50,000—did not show a comparable decrease in savings intent. Instead, they exhibited an increased inclination to rely on debt, with their intent to use debt rising by 1.3 points within the month and by five points over the past three months.

This dependency on debt, particularly among lower-income groups, indicates that these consumers may attempt to manage rising living costs through credit rather than savings. These shifts in financial behavior come on the heels of a recent downward adjustment in consumer outlook scores. The headline score for the Consumer Health Index fell by 5.3 points last month to reach 94.6. The decline for upper-income households was particularly steep, dropping 11.8 points to just 88.6.

Despite these challenging indicators, the overall intent-to-spend measurement held at a steady 102.0 in May, only declining slightly from April's figures. This number suggests that many consumers still plan to engage in spending, even amidst apprehension about the future. The intent-to-spend score for upper-income individuals remains notably positive at 106.2, overall indicating that while their savings sentiment has diminished, their willingness to spend has not yet retracted in a significant manner.

Brian Stobie, senior director in Bain's Macro Trends Group, shared insights indicating that the apparent resilience in spending intentions does not forecast an imminent decline in consumer expenditures—unless significant job losses occur. Consequently, many industries may remain relatively unharmed, particularly those dependent on upper-income discretionary spending. Nonetheless, the looming uncertainty poses a challenge, especially for businesses that thrive on discretionary purchases, where consumers might begin to tighten their budgets in response to rising costs.

In this evolving landscape, consumers want to prioritize their spending and may consciously choose to invest in essential goods versus luxuries. The need for adaptability in response to fluctuating economic conditions is paramount for businesses moving forward. As we continue to assess the impact of these changes, it is vital to recognize that while overall consumption may seem stable, the varying behaviors across income groups indicate a potential shift in how consumer spending will unfold in the coming months.

For more detailed insights, please refer to the full report provided by Bain & Company and Dynata.