Rising prices, inflation weigh on consumers

NEW YORK — Personal financial well-being can impact how consumers approach everything from budgeting for big purchases to their grocery lists.

Deloitte’s ongoing ConsumerSignals tracks several key indices to better understand consumers’ spending capacity and patterns, including financial well-being, spending intent, retail and consumer products, and automotive. The latest data, released today, found concern around rising prices is not fading and likely weighs on Americans’ overall sense of financial well-being.

Key takeaways

• Deloitte’s U.S. financial well-being index (baselined to April 2020) was 99 in January 2024, nearly unchanged from 99.8 a year ago.
• Since 2020, the index trended inversely with headline inflation, with price spikes likely influencing consumer sentiment on savings levels, large purchases, financial expectations for the upcoming year, and other dimensions of financial health that comprise the index.
• Americans’ spending intentions have yet to fully recover to pre-inflation levels, and stagnating financial well-being could play a role.
• Controlling for the influence of income, age, employment status, and other factors that influence consumer spending, financial well-being was found to have a key role in spending intentions across several major categories such as clothing, leisure travel, and restaurants, among other categories.

 Why this matters 

A consumer’s sense of personal financial well-being likely forms the bedrock for spending behavior — from their approach to budgeting, to what they buy at the grocery store, how they plan their vacations, and when they buy a car. In its fourth year, Deloitte’s “ConsumerSignals” (formerly the Global State of the Consumer Tracker), a longitudinal consumer research study, explores shifts in global financial well-being sentiment and its potential impact on purchase decisions.  

Financial well-being sentiment has plateaued in the U.S. since early 2023

Unlike consumer confidence indices, which often focus on consumer opinion about business or labor market conditions, financial well-being focuses on the consumer’s own financial situation, security and future expectations. Deloitte’s Financial Well-being Index (FWBI) captures change across six dimensions of financial health: 1) ability to make upcoming payments, 2) comfort with level of savings, 3) income relative to spending, 4) delays in making large purchases, 5) assessment of current financial situation relative to the prior year, and 6) financial expectations for the year ahead.

• Deloitte’s U.S. financial well-being index hit a 3-year low of 70.7 in June 2022, the month inflation peaked at 9.1.
• Americans quickly responded to early signs of easing inflation. The index recovered to 94.6 by November 2022 as inflation eased to 7.1%.
• The index recovery was largely driven by strong improvements in the percentage of Americans concerned about their savings (61% in June 2022 versus 48% in January 2024), delaying large purchases (56% versus 44%), and concerns about making upcoming payments (32% versus 21%).
• However, the quick well-being boost from easing inflation has likely worn-off.
• The index largely plateaued over the past year, nearly unchanged between January 2023 (99.8) and January 2024 (99). Across much of the same period, inflation rates eased but stubbornly hovered between 3% and 4%.
• Persisting inflation will likely continue to weigh on consumer financial well-being sentiment, given lingering and widespread concern around rising prices. 
• While not factored into the financial well-being index, concern around credit card debt is also on the rise in the U.S. and remains a metric to watch. The number of Americans concerned about their credit card debt hit 3 in 10 at the end of 2023, up from two in 10 a year ago.

“Despite low unemployment, GDP growth, and solid retail sales numbers, financial and geopolitical anxiety weigh heavily on the U.S. consumer’s psyche. After navigating inflation for two-plus years, consumers’ price expectations are moving slower than moderating inflation rates. Their intention to pull back on nondiscretionary items like groceries underscores the price fatigue and anxiety U.S. consumers feel. Business leaders should adjust their strategies to help rekindle profitable loyalty and volumes,” said Stephen Rogers, managing director, Deloitte Consumer Industry Center, Deloitte Services LP

Americans still aren’t thinking about spending like they did pre-inflation 

Inflation took a toll on spending confidence. Though rates have eased, Americans are likely still acclimating to the daily cost pressure. Deloitte’s Spending Intentions Index measures changes in consumers’ estimated spending for the month ahead across 16 categories. Stagnating financial well-being sentiment is one probable reason why spending intentions have not consistently returned to pre-inflation levels. While maintaining a slight uptrend since May 2023, spending intentions are still yet to fully recover.

• Peak inflation of 9.1% in June 2022 coincides with the start of a year-long drop in consumer spending intentions.
• Weakened spending confidence, particularly in categories such as recreation and entertainment, electronics, restaurants, clothing, and personal care, suggests consumers continue to rethink their budgets to offset rising costs for essentials like housing, groceries, and transportation, where spending intentions remained relatively steady.
• Leisure travel has remained strong, still potentially influenced by pent-up pandemic demand.
• Stagnating financial well-being sentiment is likely a factor. More robust financial well-being correlates with stronger spending intentions for several categories, including clothing, recreation, restaurants, and home furnishings, when controlling for income, age, employment status, and household composition.
• Financial well-being had little to no impact on spending intentions for several categories, including data and internet, education, household goods and groceries.
• Financial well-being also showed no correlation with whether or not consumers were in the market for a new or used vehicle. For more insights, visit Deloitte Vehicle Purchase Intent (VPI) Index, a monthly proprietary measure of forward vehicle demand intent calculated based on the percentage of U.S. consumers that indicate they are planning to acquire a vehicle in the next six months. 
• Amidst rising food prices, spending intentions for groceries remained relatively flat since 2021, suggesting shifting behaviors at the grocery store. For more insights, visit Deloitte’s Food Frugality Index (FFI), a monthly, proprietary measure of behaviors associated with financial stress at the grocery store — and how they may be shaping the way consumers shop for food.

 Financial well-being following unique paths across the world

Deloitte’s global financial well-being index, an average of eight of the top 10 global economies, suggests financial well-being has been faring better globally compared to the U.S. since the index’s early pandemic April 2020 baseline. However, country-level trends vary.

• As of January 2024, the global index stood at 102.1, marking a slight increase from 100.2 year-over-year, suggesting a modest upward trend in global financial well-being.
• Alongside the U.S., the index has traveled below the global average in the U.K. and Germany.
• While Canada has moved in a tight range with the global average since 2020, recent months have signaled eroding financial well-being. 

“On a global scale, consumers are mixed in how they view their financial well-being. However, we’ve seen a series of ebbs and flows in financial well-being since the pandemic, demonstrating consumers’ ongoing resilience despite economic headwinds. A global pivot in spending intentions from goods to services shows consumers are still willing to spend differently, which presents new opportunities for business leaders in various sectors,” said Leon Pieters, global consumer industry leader, Deloitte LLP.

Deloitte’s ConsumerSignals conducts a monthly survey of 20,000 consumers across 20 countries, presenting insights through interactive dashboards and articles. Along with Deloitte’s financial well-being and spending intentions indices, ConsumerSignals includes sector-specific indices like the Vehicle Purchase Intent (VPI) and Food Frugality Index (FFI). These indices offer a comprehensive perspective on changing spending behaviors as global consumers adapt to an unpredictable world. The most recent survey, wave 51, was conducted from Jan. 25 to 31, 2024.