According to analysts at the Bank of America Institute, U.S. consumers have been pushed further into a value-focused mindset, and it is unclear how long this will last.
Analysts at the institute took deposit account data along with credit and debit card spending data to create a proprietary Spending Tier Composite, which they described as a proxy for trade down activity. The index reached its lowest level since 2021, “suggesting more households are shifting spending to value-tier merchants.”
What makes the spending trends worrisome is how it cuts across several segments, the report noted.
“Apparel and dining show clear signs of consumers trading down, but when it comes to travel, some households may be opting out of trips entirely rather than shifting to lower-cost options,” the report’s authors said. “Millennials are leading the move toward value-oriented spending. Since 2022, Millennials’ spending tier has fallen faster than that of Gen X or Baby Boomers, particularly in apparel and groceries, suggesting greater sensitivity to rising costs.”
The analysts said consumers exhibit significant flexibility in apparel during inflationary periods by migrating across brands and retail channels or even postponing discretionary buying. They noted that this manifests clearly in their data, where apparel share-to-total consumption (STC) has trended down substantially over the past several years.
The research showed that dining STC has experienced a comparable contraction relative to its 2024 average.
By contrast, travel dynamics have diverged from apparel and dining. Rebounding hotel growth and strong cruise demand signal renewed activity, though the cruise segment remains a key budget-oriented option. Notably, the rise in Bank of America’s travel STC may indicate that lower-income travelers are skipping trips altogether, artificially inflating average spend metrics rather than signaling reduced price sensitivity.
After further digesting the data, the analysts asked a key question: Can trading down insulate consumers from inflation?
“While trading down can help consumers preserve purchasing power, its effectiveness depends on how easily spending can be shifted to lower-cost alternatives,” the report said. “A decline in the STC indicates consumers are moving toward value, though it does not demonstrate how much inflation they have avoided.”
The report’s authors said apparel stands out, though. The said while apparel inflation has generally remained below the Bank of America overall after-tax wage growth, “it has run closer to wage growth than either grocery or dining inflation in recent months.”
But at the same time, the apparel segment recorded the largest decline in the STC, which suggests consumers are increasingly responding to rising prices by shifting purchases to lower-cost retailers. “By contrast, grocery inflation has remained comparatively subdued and spending patterns in this category have been more stable, implying less need to seek out alternatives,” the report stated.
Time also plays a role, the analysts said, as well as recent tariffs.
“During the inflation surge of 2021 and 2022, apparel prices accelerated sharply while the STC for this category declined,” the report’s authors said. “More recently, as apparel inflation has inched back up, the clothing STC has fallen. According to BofA Global Research, the increase reflects tariff-related price increases reaching consumers.”
And similar to other recent consumer research findings, the data showed that shoppers are not only turning to discount brands to save money, they are also delaying discretionary purchases as well as shopping closer to need, “particularly in categories such as apparel where buying can be postponed.”
“It is also likely, in our view, that this has led to an increase in thrifting and buying secondhand,” the report said.
Regarding demographics, the researchers found that Gen Z continues to have the lowest STC. “This likely reflects the fact that younger consumers typically have lower incomes and fewer accumulated assets,” the report’s authors said, adding that Millennials tell a different story.” Once the group with the highest STC, they’ve since reversed course as more trade down to lower-priced value tiers. That’s likely because Millennials occupy a unique position in the consumer landscape.”
The analysts surmised that many Millennials are simultaneously raising families while facing high housing, auto and childcare costs.
