As we enter the final quarter of 2025, American consumers are approaching the holiday shopping season with unprecedented caution. Consumer sentiment has plummeted to concerning levels, with the University of Michigan Consumer Sentiment Index falling to 55.1 in September (a four-month low and the seventh-lowest reading since the index began tracking in 1952). This marks a sharp 5.3% decline from August and a staggering 21.6% drop from the previous year.
The data paints a clear picture: this will be a tepid holiday season where consumers are expected to be deliberate and strategic with their spending. Three key factors are driving this trend: persistent inflation concerns, the economic impact of new tariffs implemented earlier in 2025, and a cooling labor market that has consumers worried about their financial futures.
While overall inflation has moderated from its peak, consumers remain acutely aware of rising prices, particularly for essentials. Food prices have emerged as a primary concern, with Circana's research revealing that nearly two-thirds of consumers indicate household grocery costs will impact their holiday shopping decisions this year. This sensitivity to food pricing reflects a broader anxiety about purchasing power erosion. Forty-four percent of consumers spontaneously mention that high prices are eroding their personal finances.
The tariff situation has only amplified these concerns. More than 80% of holiday shoppers expect prices to be higher this year as a result of tariffs and other economic factors. During consumer interviews in September, approximately 60% raised tariffs as a topic of concern, with these discussions consistently linked to fears about future price increases. New tariffs on trucks, furniture, and pharmaceuticals announced in recent months are beginning to flow through to consumer prices.
The employment picture has shifted dramatically, with consumers growing increasingly pessimistic about job availability. The Conference Board reported that consumers' appraisal of current job availability fell for the ninth consecutive month in September, reaching a new multiyear low. This aligns with the actual decline in job openings and reflects a broader softening in labor market conditions.
This anxiety about employment extends beyond just losing jobs. It's about job quality in an evolving economy. The deportation of shadow labor forces and the rise of AI taking on educated jobs or reducing available positions have created a dual pressure point. Workers at all levels are questioning their long-term job security in ways that weren't as prevalent just a year ago.
The complete exhaustion of pandemic-era savings is especially concerning. According to Federal Reserve research, American households accumulated $2.1 trillion in excess savings between March 2020 and August 2021. By March 2024, these savings had been fully depleted at the aggregate level. Americans' cumulative savings are now slightly below where we would expect them to be if the pandemic had never happened.
The personal savings rate tells a troubling story. After peaking at 32% in April 2020, it has now settled well below pre-pandemic levels, leaving households with minimal financial cushion. Only 54% of U.S. adults have enough savings to cover three months of expenses if they lost their primary source of income (down from over 59% in 2021).
As savings have disappeared, debt has surged. Credit card debt reached $1.21 trillion in the second quarter of 2025, matching last year's all-time high. The average household now carries approximately $9,144 in credit card debt, with individual borrowers averaging $6,371 in outstanding balances. What makes this particularly concerning is the interest rate environment: the average credit card APR reached 25.33% in 2025, making this debt extraordinarily expensive to carry.
Delinquency rates are climbing, with 6.93% of credit card balances transitioning to delinquency over the last year. The share of credit card debt that's 30+ days delinquent reached 14.1% nationally in Q1 2025. These numbers reflect genuine financial distress, particularly among lower-income households. In the lowest income ZIP codes, 30-day delinquency rates climbed from 14.9% in mid-2022 to 22.8% in Q1 2025.
Nearly two-thirds (64%) of credit card debtors report they have delayed or avoided financial decisions because of their credit card debt, including saving for emergencies (34%), investing (23%), and buying a vehicle (21%). This debt burden is constraining consumers' ability to make major life decisions and reducing their financial resilience.
The financial strain is far from evenly distributed. While sentiment held steady for consumers with larger stock holdings in September, it decreased significantly for those with smaller or no holdings. Higher-income consumers remain better positioned to weather economic uncertainty and are more likely to maintain or increase their spending. However, lower and middle-income households (particularly those earning between $25,000 and $35,000, and paradoxically, those making above $200,000) saw confidence fall below April lows.
This bifurcation is evident across multiple metrics. Fifty-six percent of households with annual incomes under $50,000 carry credit card debt month to month, versus just 34% who earn $100,000 or more. The growing "K-shaped" split means that aggregate spending data may mask the very real struggles of a significant portion of American consumers.
The upcoming holiday season will be characterized by deliberate, value-oriented purchasing decisions. Circana's holiday shopping research reveals that consumers plan to spend an average of $796 on holiday shopping this year (3% higher than last year's intentions), but this modest increase comes with significant behavioral shifts.
Nearly half (47%) of consumers plan to spend about the same as last year, while the distribution between those planning to spend more versus less reveals a market in flux. More than a third (34%) say they will take advantage of more deals this year, and 31% indicate they will buy fewer items to manage their budgets.
The shopping calendar is being rewritten. Almost half of consumers plan to start their holiday shopping before Thanksgiving, and 24% have already started or even finished (up nearly 4 percentage points from last year). This early shopping behavior is driven by dual motivations: taking advantage of early season promotions and avoiding possible future price increases from tariffs. The number of consumers planning to wait until December has fallen to just 19%, the lowest in recent years.
A profound shift in consumer psychology is underway. Americans are becoming more deliberate and value-oriented in their purchases, actively seeking deals and trading down to more affordable brands. This isn't the trading down of desperation. It's strategic optimization. Many consumers who have traded down to less expensive alternatives are discovering these products work just fine, leading to permanent shifts in brand loyalty.
SPINS research on Millennials and Gen Z reveals that younger consumers turn to private label products for commodity items like pantry staples, produce, and baked goods, but are willing to splurge on branded items in lifestyle and self-care categories such as cosmetics, body care, beverages, and supplements. Private labels aren't second-best. They’re a smart way to save on basics while investing in products that matter for identity and wellness.
The rise of "dupes" versus fakes illustrates this perfectly. Consumers aren't seeking counterfeit luxury goods. They're finding legitimate alternatives that deliver similar benefits at lower price points. This represents a broader questioning of consumerism itself, a backlash against planned obsolescence and a search for products that are genuinely "made to last." Companies with reputations for quality and durability, like Speed Queen appliances, are benefiting from this shift in mindset.
Beauty and Wellness Products: Despite economic pressures, consumers plan to spend more on lower-cost indulgences like beauty products. For younger consumers especially, these categories represent affordable self-care and identity expression.
Home Appliances and Housewares: Practicality takes center stage, with consumers prioritizing spending on things like home appliances and housewares (purchases that deliver lasting value).
Protein and Nutrition: Circana reports that 41% of adults are actively seeking to increase their protein intake, driving strong growth for products with protein claims.
Non-Discretionary Services: Financial services, car maintenance, and other essential services will continue to see steady demand as consumers prioritize keeping their existing assets functioning.
Technology and Electronics: Planned spending is down for traditionally higher-ticket purchases like technology and electronics as consumers pull back on expensive discretionary items.
Apparel: The clothing category faces challenges as consumers deprioritize wardrobe updates in favor of more essential purchases.
Dining Out and Entertainment: With 28% of credit card debtors' spending coming from day-to-day expenses like groceries and utilities, discretionary dining and entertainment expenditures are being squeezed.
Home Improvement: Big-ticket home improvement projects are being delayed as consumers conserve resources and manage debt.
Something deeper is happening beneath the surface of these spending patterns: a fundamental reevaluation of consumption itself. Consumers are questioning whether they need everything they've been buying, leading to movements that directly challenge traditional consumer culture.
The "anti-streaming" sentiment reflects frustration with subscription proliferation. The "anti-plastic" movement aligns with environmental concerns. Consumers are asking whether consumption should define status, or whether investing in quality, durable goods that can be repaired rather than replaced represents a better path forward.
This shift toward "buying it for life" versus accepting planned obsolescence from companies represents a potential long-term headwind for industries built on frequent replacement cycles. The growing interest in repairing versus replacing products signals a more sustainable, but less consumption-intensive, future.
Circana identifies a notable "return to purity" trend gaining momentum alongside broader "Make America Healthy Again" initiatives. Twenty-eight percent of adults now avoid artificial sweeteners, and 25% avoid artificial colors and flavors. This movement toward clean labels and transparency isn't confined to a niche. It's becoming a mainstream expectation.
SPINS research reveals that an astounding 90% of Millennials and Gen Z are deliberately cutting out specific ingredients from their diets and personal care routines. In beverages, sugar and its substitutes top the list of avoided ingredients, with artificial sweeteners, high fructose corn syrup, and sugar alcohols all under scrutiny. In body care, the focus is on avoiding synthetic or petroleum-based ingredients, harsh surfactants, and unnecessary fragrances.
For brands, "clean label" isn't optional. It's the entry point. The next generation of consumers are researchers and label-readers who expect honesty and clarity from the products they purchase.
While a growing sense of caution is evident across all generations, how this manifests varies significantly by age group. The Conference Board noted that confidence rose slightly for consumers under 35 years old in September, even as it declined for those over 35. This modest uptick shouldn't mask the very real financial pressures younger consumers face.
Younger generations are leading the "early shopping" trend and are more likely to cut gift budgets significantly compared to previous years. They're also demonstrating remarkable adaptability in how they approach consumption.
Nearly 40% of Millennials and Gen Z are choosing to follow specialty diets (not out of necessity, but by choice). This reflects how invested these generations are in food as part of their lifestyle and identity. High-protein and low-carb diets are particularly influential, with more than half of both groups following a high-protein diet.
Their shopping behavior also differs markedly from older generations. Instead of the one-stop shop, 80% of Millennials and Gen Z shop at two to three different stores weekly, with 30-40% shopping at natural and organic retailers and local farmers' markets. This intentionality carries into product discovery. In-store visits remain the leading way these consumers discover new products, surpassing even social media and digital advertising.
Price consciousness shapes every trip. For Millennials, the cost of meat, seafood, and dairy heavily influences shopping destinations. For Gen Z, beverage prices are the primary driver. Younger consumers focus on total shelf price rather than unit or price per serving, meaning shrinkflation may have more impact than straightforward price increases.
Older generations are also more cautious, but their spending habits are less volatile. They're less likely to have splurged significantly in the first place, so the pullback is less dramatic. They're not immune to the pressures though. By income, confidence remained above April lows for most consumer cohorts except households earning between $25,000 and $35,000 and those making above $200,000, showing that financial anxiety spans the income spectrum in unexpected ways.
A concerning trend among Gen Z is what some observers characterize as a "live fast, die young" approach to personal finances. Faced with student debt, housing unaffordability, and uncertain economic futures, some younger consumers are prioritizing immediate experiences and consumption over long-term financial planning. This manifests in higher reliance on credit, lower emergency savings, and a sense that traditional financial milestones may be unattainable regardless of saving behavior.
This mindset, while concerning from a financial stability perspective, also explains some of the resilience in consumer spending despite negative sentiment. If the future feels uncertain anyway, the logic goes, why not spend on what brings joy today?
As Marshal Cohen of Circana notes, "Holiday 2025 will be full of surprises and challenges, from comparisons to the 2024 election impact and continuous economic uncertainty, to the influence of social media and the spirit of the holiday season." The volatility of consumers is evident in their feelings about the holiday shopping season, which means the flow will be less predictable than any other year.
Final retail holiday results will be greatly influenced by the timing of everything from promotions to the news of the day. Retailers and brands will need to remain agile, responding quickly to shifting consumer sentiment and being prepared to adjust strategies mid-season.
What Circana's David Portalatin identifies as the coexistence of "uncertainty and resilience" in consumer behavior is fascinating. Despite low sentiment readings and genuine financial pressures, consumers continue to spend. Personal consumption expenditures climbed 0.6% in August from the prior month, demonstrating that sentiment isn't always a reliable predictor of spending behavior in the post-pandemic era.
This resilience, however, may be reaching its limits. With excess savings depleted, debt levels at all-time highs, and interest rates making that debt expensive to carry, the financial buffers that allowed consumers to maintain spending despite negative sentiment are largely gone.
Embrace Promotions Strategically: With 34% of shoppers planning to take advantage of more deals, promotional strategy will be critical. Maintain brand value though. Consumers are savvy enough to distinguish between genuine value and desperation pricing.
Prioritize Transparency and Quality: The movement toward clean labels, ingredient transparency, and durable products isn't going away. Brands that can authentically communicate quality and transparency will build lasting loyalty.
Optimize for Omnichannel Discovery: With younger consumers shopping across multiple channels and discovering products both in-store and digitally, a seamless omnichannel experience is essential.
Segment with Sophistication: The K-shaped consumer reality requires different strategies for different income segments. What works for affluent consumers who are maintaining spending will differ dramatically from what resonates with financially stressed households.
Watch for Category Rotation: The shift from discretionary to essential spending, and from expensive durables to everyday indulgences, will create winners and losers at the category level.
Monitor Debt Delinquency Rates: Rising delinquency rates, particularly among subprime borrowers, could be the canary in the coal mine for broader consumer stress.
Track Labor Market Data Closely: Given consumer anxiety about employment, any further softening in the labor market could trigger more dramatic spending pullbacks.
Q4 2025 represents a potential inflection point in consumer behavior. The combination of depleted savings, elevated debt, persistent inflation concerns, and labor market anxiety creates a challenging environment. Yet consumers have demonstrated remarkable adaptability and resilience throughout the post-pandemic period.
The tepid holiday season ahead will require both consumers and businesses to be strategic, value-conscious, and adaptable. Those who can navigate this environment (offering genuine value, transparency, and quality while remaining financially flexible) will be best positioned for whatever economic conditions materialize in 2026.
As we move through Q4, the key will be watching whether the resilience that has sustained consumer spending thus far can persist without the financial buffers that previously supported it. The answer to that question will shape not just the holiday season, but the economic trajectory of the year ahead.