Bank of America data shows consumers trade down as inflation strains U.S. household budgets

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Consumers trade down amid inflation

Highlights

Bank of America Institute data shows a downward trend in its spending tier composite as U.S. consumers shift from premium to value options, especially in apparel and dining.
Rising gas prices, high mortgage rates, and persistent Fed tightening have increased affordability pressures, with 57% of University of Michigan survey respondents citing high prices eroding living standards.
Millennials and Gen Z are trading down due to mounting expenses and lower incomes, while company earnings calls confirm value-focused consumer behavior across sectors despite continued wage growth.

Spending shifts point to value-focused buying

As reported by Business Insider, citing Bank of America Institute, a new spending tier composite built from card data across apparel, dining, grocery and travel shows consumers are increasingly moving away from premium merchants toward standard and value options.

Taylor Bowley, an economist at the institute, says consumers are still spending and adapting to inflation, but not escaping it. The report says the composite has trended downward over the past few years, signaling that more households are redirecting spending to cheaper outlets rather than higher-end stores, restaurants and experiences.

The shift is most pronounced in apparel and dining, while travel shows an upward move in the bank's metric. Bowley says airline spending growth remains robust mainly because fares are higher even as transaction volumes dip, and the report adds that hotel spending has recently strengthened while cruise demand stays solid, partly because cruises can offer a lower-cost way to travel.

Affordability pressures spread across generations and sectors

Affordability concerns are intensifying as gas prices rise since the start of the Iran war, mortgage rates climb and the Federal Reserve keeps policy tight after a September rate increase and an October pause. In the latest University of Michigan consumer survey release, director Joanne Hsu says 57% of respondents spontaneously mention that high prices are eroding living standards, up from 46% in February.

The Bank of America report says millennials are trading down as early middle-age expenses mount, including childcare, housing and auto payments. Gen Z consistently posts a lower composite score than older cohorts, which the report links to lower incomes and fewer accumulated assets, while baby boomers hold the highest composite and show steadier shopping behavior.

Company earnings calls point to similar behavior across retail and consumer-facing sectors. Performance Food Group CEO Scott McPherson says consumers remain value-conscious and selective with discretionary spending, Advance Auto Parts CEO Ryan Grimsland says shoppers are deferring larger repair projects, and Ollie's CEO Eric van der Valk says even higher-income customers are trading down in search of value. Bowley says wage growth remains positive, helping absorb some price increases, but adds that support has limits, especially for housing-related costs.

Earlier, we outlined Australia’s department store decline as shopping centres adapt to discount chains and online competition.

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