Something is happening in consumer land. In spite of reports boasting the strong job market and slowing inflation, most people are feeling more financial pressure. Yet, they’re splurging more than before. The catch is: they’re not spending the way they used to. From $20 Erewhon smoothies to grocery carts filled with grass-fed beef and probiotic soda, a new kind of indulgence is emerging. One rooted in wellness, not whimsy. This month, I’m diving into the dichotomy of today’s consumers. Exploring why we’re pessimistic about the economy, but reaching deeper into our wallets to soothe, signal, and survive.

1: Consumers are pessimistic about the economy, despite positive momentum.

Today, consumer sentiment towards the economy is split. ⅓ of consumers believe they’re worse off financially than in 2023¹. But economic measures in the US are encouraging. Unemployment in November 2024 was close to a historic low at 4.2%. It was also reported that wages in the private sector were up more than 25% since late 2019, surpassing inflation and lending to real income growth in middle and lower tiers. “Despite all this, US consumer confidence remains below pre-pandemic levels².”

As inflation in CPG starts to slow, consumers are remaining cautious. Because “they’re still spending 17% more than they were for the same goods in 2022.” Rising food prices is the #1 concern among consumers. Canada is among the countries where concern for the rising cost of living is the highest¹.

American economist, Kyla Scanlon, coined the term “vibecession” in 2022 when she observed the overall pessimism towards the economy despite the promising indicators that inflation was decelerating and unemployment declining. Scanlon theorized that uncertainty, confusion, and mistrust were fueling the fire³. Although the term was coined in 2022, the sentiment still remains.

2: Consumer spending is no longer synced with economic sentiment.

Historically, consumers would spend less when they felt uncertain or pessimistic about the markets. This has been changing in the last few years. Economic apprehension spiked when inflation soared and it hasn’t really bounced back. That isn’t the case for spending though. “In fact, our consumer research shows that, even when we adjust spending for inflation, in aggregate, consumers are spending more than they were before the pandemic and are spending more each year².” Despite the pessimism and uncertainty, consumer spending has only increased, surpassing pre-pandemic levels after adjusting for inflation.

3: Consumers are changing the categories they’re indulging in.

The misaligned consumer sentiment and spending can be seen in the CPG industry where we’re seeing 4.9% sales growth. Interestingly, we’re only observing a 0.8% growth in unit sales. The incremental unit sales are being driven by economy and ultra budget brands, indicating a huge discrepancy between highest and lowest spenders. This means people are spending more while buying less. With beauty, confectionery and snacks, home care, and pet food being some of the most highly inflated, consumers are indulging in new categories. People are spending less on dining out, food delivery, clothing, and home improvement. Instead, they’ve shifted to splurging on fresh produce, health and wellness, dairy, fresh meat, and home essentials¹. Consumer spending in CPG is rising despite weak sentiment. There’s a shift towards indulgence in essentials and wellness over discretionary items like dining out.

4: This isn’t a new concept or behaviour.

Indulging during recessions isn’t a new concept. In the early 2000s, Leonard Lauder observed this when sales of lipstick dramatically increased during the financial and political turmoil of the time. This behavioural phenomena is dubbed the lipstick effect⁴.

Despite the worry surrounding the increased cost of living, consumers are still splurging but their spending is more intentional. It seems as though consumers are swapping the everyday luxury of lipstick for health related essentials. They’re purchasing everyday luxuries, like groceries, food, and wellness, rather than discretionary categories clothing, home decor, or vehicles.

5: People spend money to cope, rationalize, and fit in with others.

Why are consumers spending despite feeling poorly about their financial situation? Why are they splurging in new categories?

It seems as though consumers have accepted that they will be spending more for essential items, and have even leaned into the skid by purchasing everyday luxuries. Psychologically, this could be a way of coping, rationalizing, and identity signaling.

Coping can be categorized into two broad categories: emotion-focused or problem-focused. Emotion-focused coping aims to alleviate the negative feelings and stress of the situation. Whereas, problem-focused coping is directed at changing the specific situation⁵. Considering the general sentiment towards the economy is hopelessness, it seems consumers are emotionally coping with the stress of the economic environment by purchasing everyday treats.

Similarly, rationalization occurs "when the individual deals with emotional conflict or internal or external stressors by concealing the true motivations for their own thoughts, actions, or feelings through the elaboration of reassuring or self serving but incorrect explanations"⁶. That is, consumers are buying themselves little treats as a way to make themselves feel better about the rising cost of living.

One of the biggest influences on consumer spending is peer groups. “People buy products, hold attitudes, and engage in behaviours not only for their functional value but also for what they symbolize” ⁷. Consumers are shifting the categories they spend into to fit into their ideal self image. Unsurprisingly, the more you see a romanticized lifestyle on social media with people buying $20 Erewhon smoothies, the more likely you are to buy one yourself.

6: Consumers are willing to increase personal debt to maintain their lifestyles - and brands are catching on.

What shocked me most during my research for this article is that consumers are increasing personal debt to maintain their lifestyles. In fact, “28% of consumers say they are likely to increase personal debt to maintain their current lifestyle¹.” Some consumers have simply given up curbing their spending. This statistic, combined with the recent partnership between DoorDash and Klarna leads me to believe this economic sentiment of mistrust will only continue to rise because companies are trying to capitalize on the little treat culture created by the very mistrust they’ve sown.

In Summary

We’re not seeing irrational spending, we’re seeing deeply human behaviour. Consumers aren’t ignoring the economic headwinds. They’re responding in the only way that feels within their control; through small indulgences and identity-driven purchases. This emerging wave of intentional splurging speaks volumes on how we rationalize, relate, and reinforce roles in society. As inflation decelerates but mistrust lingers, one question remains: how can brands better identify which necessity categories are becoming the new indulgence zones for consumers?

Sources:

Nielsen (September 23 2024). Mid-Year Consumer Outlook: Guide to 2025. https://nielseniq.com/global/en/insights/report/2024/mid-year-consumer-outlook-guide-to-2025/
McKinsey and Co. (February 28 2025). An update on US consumer sentiment: Is growing uncertainty casting a chill on spending plans? https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-state-of-the-us-consumer
Kyla Scanlon (June 30 2022). The Vibecession: The Self-Fulfilling Prophecy. https://kyla.substack.com/p/the-vibecession-the-self-fulfilling
Emily Nelson (November 26 2001). Rising Lipstick Sales May Mean Pouting Economy and Few Smiles. The Wall Street Journal. https://www.wsj.com/articles/SB1006731471172641080
Caroline M Coppens, Sietse F de Boer, Jaap M Koolhaas (December 27 2010). Coping styles and behavioural flexibility: towards underlying mechanisms. Philosophical Transactions of the Royal Society B: Biological Sciences https://pmc.ncbi.nlm.nih.gov/articles/PMC2992750/
American Psychological Association. (n.d.). Rationalization. In APA Dictionary of Psychology. https://dictionary.apa.org/rationalization
Jonah Berger (2008). Identity-signaling, social influence, and social contagion. In M. J. Prinstein & K. A. Dodge (Eds.), Understanding peer influence in children and adolescents (pp. 181–199). https://faculty.wharton.upenn.edu/wp-content/uploads/2012/04/Identity-Signaling-Social-Influence-and-Social-Contagion.pdf

Trying Times and Treat Temptation