Consumers Trade Down at Fastest Pace Since 2021, Bank Says

Shoppers aren't spending less. They're spending lower. A new Bank of America Institute report finds consumers trading down — shifting their purchases toward value-tier merchants instead of premium ones — at the strongest pace since 2021. The finding comes from the bank's spending tier composite, which tracks consumer spending data across four categories, apparel, dining, grocery and travel, against the median incomes of shoppers at premium, standard and value stores. The composite has trended downward for the past few years.

The bank's economist is careful about what the shift means. Taylor Bowley of the Bank of America Institute told Business Insider that consumers are still spending and adapting to inflation, but adapting isn't the same as escaping it — they're stretching their budgets by trading down where they have the choice. Wage growth remains positive, Bowley said, which helps absorb some of the rise in prices, but that buffer only goes so far, especially on housing.

Where people trade down depends on where they can. The bank's data shows trading down is most prevalent in apparel and dining, the two categories where a cheaper substitute is easiest to find. Travel runs the other way in the bank's metric, but the report itself supplies the caveat: airline spending growth has been robust largely because fares are higher while transactions dip, hotel spending has renewed strength, and cruise spending is often a budget-friendly way to travel. The travel increase may reflect lower-budget travelers skipping trips altogether rather than anyone feeling less price-conscious.

The generational split is where the report gets specific. Millennials are trading down, the bank says, likely because of the demands of early middle age: many are parents paying for childcare on top of housing costs and auto payments that have run higher for their generation. Gen Z has consistently scored lower on the composite than older generations, which the report attributes to lower incomes and fewer accumulated assets. Baby boomers hold the highest composite, and Bowley described their shopping habits as steady.

Survey data agrees with the card data. In the University of Michigan's latest consumer survey, about 57 percent of respondents spontaneously mentioned that high prices have eroded their living standards — the highest share since May, and up from 46 percent in February. Company earnings calls are telling the same story from the other side of the register: Performance Food Group's CEO said consumers remain value-conscious and selective, with gas around $4 a gallon adding pressure; Advance Auto Parts' CFO said hard parts categories are still soft as value-conscious consumers defer big repair projects; and Ollie's CEO said higher-income customers are also trading down in search of value, while lower-income customers prioritize needs over wants.

For a household, the practical read is the bank's own distinction. Trading down is adaptation, not relief: the spending continues, the standard quietly drops, and the categories where it shows first — clothes and restaurants — are the ones where a family can choose a cheaper version without going without. The composite says that choice is now being made more widely than at any point since 2021.