Affordability Continues to be a Concern for Consumers — Even Gen Zers
Key Takeaways
Energy, housing and core services prices continue to prop up inflation, while consumers are more likely to walk away from purchases due to high prices than they were a year ago.
Baby boomers tend to be the most price sensitive and more likely than younger generations to trade down, but Gen Zers have recently been experiencing elevated levels of sticker shock and substitution.
High prices for big-ticket purchases like housing and autos have dampened consumer demand as affordability continues to be an obstacle.
This memo offers a preview of Morning Consult’s November Inflation & Price Pressures Report. Morning Consult Economic Intelligence subscribers can access the full report here.
Energy, housing and services categories of inflation continue to create headwinds for the Federal Reserve’s fight to bring inflation down. Historically indifferent to higher prices, Gen Zers are steadily becoming more price sensitive and engaging in more trading down behaviors. Affordability continues to be a concern for consumers, especially for big-ticket items like housing and autos.
Boomers Are More Price Sensitive and Increasingly Likely to Trade Down, but Gen Zers’ Demand Is Also Beginning to Dampen
3-month moving average
Out of all generations, baby boomers are generally more price sensitive than their younger counterparts, followed closely by Gen Xers. Although baby boomers have been quite consistent in their elevated levels of price sensitivity, at the end of 2022 they were the least likely to trade down to cheaper alternatives. Over the past year, older generations have increased their substituting behavior above the younger generations. Perhaps because boomers’ price sensitivity was already so elevated, the primary means for any additional budgeting changes has been trading down to cheaper substitutes in order to compensate for rising prices.
What we do that’s different: We survey thousands of U.S. consumers monthly to measure their spending patterns and habits, asking questions on topics including household income, spending, savings, debt, housing payments and more.
Why it matters: Morning Consult’s consumer spending data provides a detailed assessment of U.S. adults’ self-reported household financial conditions and spending, as well as consumers’ perception of inflation and supply chain disruptions and the impact of both on purchasing decisions.
Gen Zers have consistently been the least price sensitive, following through with purchases even when prices are higher than expected. However, since July, Gen Zers have slowly become more price sensitive and increased their trading down behavior. Earlier this summer, Gen Zers led the pack with spending, but in the later summer months and early fall, this spending surge has appeared to run out of steam as they’ve changed their purchasing behaviors.
High prices for big-ticket items are making consumers more likely to walk away from purchases
Despite pent-up demand from chronic undersupply, the combination of price growth and mortgage rates is discouraging buyers. Morning Consult’s Price Sensitivity and Substitutability indexes for housing have begun creeping up.
In addition, rising used car prices earlier this year coincided with increased price sensitivity. Despite the recent downturn in prices, sticker shock for this category remains elevated. At the same time, consumers are less likely to trade down on new and used cars, suggesting that it’s becoming more difficult to find cheaper alternatives.
Inflation was higher than expected in September, suggesting the road to 2% may be bumpy for the Fed
With inflation hitting 3.7% for a second consecutive month, consumers’ future price expectations remain up from their recent lows this past summer. Price growth continues to be propped up by housing, energy and services categories. Despite running into higher-than-expected energy prices, consumers have not changed their purchasing behavior at the gas pump. Annual core inflation, which strips out volatile food and energy categories, continued its decline to 4.1%.
Demand for goods and services shows more signs of cooling as Morning Consult's Price Sensitivity and Substitutability indexes ticked up in October from the previous month. In addition, price sensitivity continues to remain elevated year over year as affordability remains a challenge.
Sofia Baig is an economist at decision intelligence company Morning Consult, where she works on descriptive and predictive analysis that leverages Morning Consult’s proprietary high-frequency data. Previously, she worked for the Federal Reserve Board as a quantitative analyst, focusing on topics related to monetary policy and bank stress testing. She received a bachelor’s degree in economics from Pomona College and a master’s degree in mathematics and statistics from Georgetown University.
Follow her on Twitter @_SofiaBaig_For speaking opportunities and booking requests, please email [email protected]
