Americans Avoid Discretionary Buys As Consumer Spending Focuses On Essentials

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Consumer spending in the United States is showing signs of cautious adjustment. Americans are focusing more on essential needs while cutting back on non-essential purchases. That’s the latest signal from the April 2025 Fiserv Small Business Index, which tracks sales and transactions across two million U.S. merchants.

This shift comes as persistent trade tariffs and economic uncertainty weigh on household budgets. Consumers are continuing to spend, but they are prioritizing categories like healthcare, grocery, and professional services over restaurants, travel, and general retail.

American Consumer Spending: Services Gain While Retail Slows

Fiserv reports that service-based small businesses continue to outperform goods-based ones. In April, services grew 3.6% year-over-year compared to 2.2% for goods. Top-performing categories included professional services, which rose 5%, and ambulatory healthcare, up 4.2%. In contrast, accommodation fell 5%, and transportation dropped 1.9%.

Retail sales increased modestly at 1.8% over the past year, with growth led by grocery stores (+7%), clothing retailers (+5.3%), and building materials suppliers (+4.6%). However, gas station sales dropped 4.1%, and health and personal care retail dipped 1.9%. General merchandise fell 2.6% from the previous month.

Small business restaurant activity showed a mixed pattern. Year-over-year sales rose by just 1.8%, but April saw a 0.1% monthly decline. Foot traffic rose slightly, yet average ticket size declined sharply by 7.8% compared to 2024. That suggests diners are still going out, but ordering less to stay within budget.

Consumers are also thinking carefully before paying for convenience. According to PYMNTS research, price sensitivity is affecting demand for services like home maintenance, grocery delivery, and personal care. While these services offer time savings and stress reduction, cost remains the deciding factor.

Budget Caution Influences Every Sector

Prasanna Dhore, chief data officer at Fiserv, said the data points to a more deliberate consumer mindset. “Even as consumer spending shows resiliency, market uncertainties appear to be driving budget-conscious consumers to reprioritize where they spend their money,” he said.

That reprioritization is clearest among households managing financial pressure. According to PYMNTS, 67% of American consumers were living paycheck to paycheck as of January. Among these groups, essentials continue to command the largest share of monthly outflows.

The Fiserv index itself rose to 151 in April, up one point from March. Transactions increased 6.9% year-over-year, while small business sales climbed 3.2%. That shows spending remains active, though more tightly focused on categories with immediate utility.

Restaurant sales and retail growth may see more volatility in the months ahead. Consumers are not abandoning these segments, but their behavior is shifting. Foot traffic may rise even as per-visit spending declines. Retailers in discretionary sectors may need to adjust inventory and pricing to match slimmer budgets and more value-oriented demand.

One sign of this transition is the way consumers are trading off time for money. While many value convenience, more are deciding it’s not worth the premium. In sectors where margins depend on quick delivery or personalized service, that creates pressure to defend pricing or bundle services more creatively.

Should Investors Worry About Shrinking Consumer Spending?

Investor focus may also shift toward companies with strong exposure to non-cyclical sectors. Grocery, healthcare, and core utilities are better positioned to maintain stable cash flows as discretionary demand plateaus or falls. On the other hand, brands built around lifestyle, leisure, or entertainment face growing pressure to prove near-term profitability.

In this environment, cash management and customer retention may become more critical than pure growth. Businesses able to control costs while staying relevant to consumer priorities are likely to outperform over the next two quarters.

Which sector do you expect to benefit most as consumer spending prioritizes essentials over discretionary goods? Tell us what you think!

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