Why Gen Z is embracing a trade down economy
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Younger Americans are getting choosier about how they spend, cutting back on dining out to keep spending on higher priority items.
Why it matters: Gen Z is feeling the pain of a slowing job market, the resumption of student loan payments and the pinch of rising prices.
The intrigue: But that doesn't necessarily translate to across-the-board cuts.
- "They're willing to trade down — or trade out — on everyday expenses in order to afford meaningful indulgences," per an October report on Gen Z shopping behavior from PWC.
Zoom in: About half of 1,000 Gen Z respondents to the consulting firm's September holiday survey said they planned to cut back spending on dining out and home delivery over the next six months. They also planned to spend less on clothes (33%) and alcohol (29%).
What they're saying: "What we're seeing from younger generations isn't a complete pullback, it's more of a selective prioritization of spending," says Neil Saunders, a retail analyst at GlobalData Retail.
- "Food service and eating out is one arena that's under pressure, especially as it has become significantly more expensive," he says.
- "At the same time, we are seeing Gen Z splash the cash on Coach handbags and with brands that they like. So, this is far from a depressed market."
- The CEO of Coach's parent, Tapestry, Joanne Crevoiserat, told CNBC that Gen Z "is highly fashion engaged, spending slightly more of their budget on fashion."
State of play: You can see the spending shift in recent quarterly reports from fast-food and fast casual chains.
- Chains like Chipotle, Sweetgreen, Cava and Noodles & Co. are losing momentum, Axios reported, as Gen Z and young millennials are "particularly challenged," Chipotle CEO Scott Boatwright said earlier this month.
- Millennials and Gen Z are eating at home more often, Boatwright told the WSJ.
The big picture: Trade-downs are also happening across the economy and generations.
- McDonald's said this week that the fast-food industry is seeing more higher-income customers coming through, as traffic falls from low-income customers.
- Walmart put out its 2025 Thanksgiving meal last week. It can serve 10 people for $40. Last year, the retailer offered a kit that served eight for $56 — now it has traded down by dropping things like premade pie.
By the numbers: National data is hard to come by in the government shutdown, but the most recent government statistics paint a fairly grim picture for young Americans.
- The unemployment rate for those age 20 to 24 spiked more than a full percentage point, to 9.2% in August, from a year ago, per Labor Department data.
- The share of these folks who are in the labor market is falling, too.
- "If you're graduating with 9% unemployment that's headed straight north, and no one's hiring, it's a pretty tough time," says Mark Zandi, chief economist at Moody's Analytics.
- "I suspect this cohort of young people is going to have a tough time catching up in the long run."
Editor's note: This story has been corrected to reflect that McDonald's said the fast-food industry (not just McDonald's) is seeing more higher-income customers come through.
