US Consumers Are Increasingly ‘Tapped Out’

Some economists are beginning to see cracks in consumer spending as shoppers may be running out of steam.

According to a new report from Morning Consult, the U.S. economy is coming under pressure— despite cooling inflation and continued strength in the labor market—as consumer demand will likely soften. Consumer spending has been the engine of the economy during the recovery from the pandemic.

“The labor market is cooling, price pressures are dissipating, and U.S. consumers’ willingness to splurge is looking increasingly tapped out,” said the report.

Consumers Losing Appetite for Spending

The Morning Consult’s consumer health index, which combines unemployment data with views on personal financial conditions, is at its lowest level in more than two years.

Usually, the index moves in line with retail spending figures and data from the Personal Consumption Expenditures (PCE). However, it diverged in June and July.

“U.S. consumers are losing their appetite for splurging,” the report said. “Consumers have been deprioritizing discretionary spending on both goods and services, the latter of which had previously been a core driver of expansion.” 

Discretionary Spending Slows for Price-Sensitive Consumers 

People were spending less on discretionary items like vacations and concerts, the survey showed, with the slowdown coming even as price pressures decrease.

The Morning Consult report also showed consumers are making more decisions based on “price sensitivity,” either choosing to skip certain items or in some cases, substituting with less-expensive options.

“Price sensitivity increased in both 2023 and 2024, indicating that the high cost of living has made consumers increasingly accustomed to avoiding potential purchases due to cost even as inflation cools,” the report said.