If Consumers Are So Down on the Economy, Why Are They Spending So Freely?
U.S. consumer spending has remained robust despite downbeat readings in major consumer sentiment and confidence surveys.
The Commerce Department reported that personal spending rose 0.9% in August, and second-quarter GDP growth was revised upward to 2.2%.
Economists suggest the disconnect may stem from rising household wealth, differing survey methods, or a general decline in societal confidence.
When the going gets glum, the glum go shopping.
That seems to be the way of many Americans these days. Leading surveys of their moods show them to be down in the dumps about either the economy or their own financial conditions. But that hasn’t stopped them from spending—far from it, in fact.
For months, the releases on the University of Michigan’s consumer sentiment survey and the Conference Board’s polling on consumer confidence have been drearily similar. The September UMich survey found the second-lowest reading in the polling’s history, going back to 1952. The Conference Board’s data, released this past Tuesday, was also downbeat, even lower than during the pandemic in 2020 and the worst since 2014.
Yet other news this past week showed that Americans’ spending has remained robust despite their sour mood. Personal spending was much stronger than expected in August, the Commerce Department reported, vaulting some 0.9%.
The final release of second-quarter gross domestic product showed an upward revision to a 2.2% inflation-adjusted annual rate of growth, up from 1.5% previously reported. That mainly reflected a revised gain in personal spending, to 3.8% from 3.2%. Overall GDP growth was held down by spending for imports and a drawdown in inventories. Stripping away those factors, domestic final sales grew at a robust real 3.9% annualized, a substantial acceleration from the preceding two quarters’ 2.4% and 0.5%, respectively.
The easy answer to the disconnect between downbeat sentiment and robust spending is the so-called K-shaped economy. The vast disparity among Americans’ incomes and wealth ought to end the dopey statements by TV talking heads about “the consumer” (but probably won’t). A widely cited study last year by Moody’s Analytics found that the highest-earning 10% of households accounted for nearly 50% of total spending.
Those wealthy cohorts also have the most assets, such as stocks and residential real estate, the appreciation of which has further supported their ability to spend. The top 10% of U.S. households gained $38.2 trillion in wealth in the year ended on June 30, according to recently released Federal Reserve data, as the S&P 500 index rose 21% over that span.
But that doesn’t fully explain growth in spending. A report by Bank of America economists Shruti Mishra and Aditya Bhave released this past week found increased breadth in consumption, with a narrowing in “K-shaped spending dynamics” combined with a pickup in spending among less well-off households. That’s based on the bank’s aggregated credit-and debit-card numbers. They estimate the third quarter’s spending grew at close to a 3.5% real pace, nearly matching the previous quarter’s showing.
The BofA economists found that surging equity wealth pushed household assets to more than 10 times their liabilities, which they said provided a “continued tailwind for spending.” Those gains weren’t just in rich folk’s stock portfolios. Liquid assets (such as bank deposits and money-market funds), which are probably more evenly distribution across the population, also are elevated versus liabilities. The economists warned, however, that a shakeout in artificial-intelligence stocks, higher long-term interest rates, or a more significant oil-price shock could pose a potential risk to spending.
While stock market wealth has ballooned in recent years, investors’ tendency to spend that largess has diminished. Based on the experience of 2012-19 following the financial crisis of 2008-09, the tendency to spend out of wealth declined, according to a Federal Reserve paper published in 2025. If investors were more circumspect in cashing in their big stock profits during a bull run, might they also keep their spending on a relatively even keel even if the market takes back some of their gains? That’s plausible but of course remains to be seen.
So, what really explains the evident split between the consumers’ moods and their spending? Part of the answer may lie in the survey methods. Piper Sandler’s economics team, led by Nancy Lazar, contends that its proprietary survey, which polls 500 different people nightly, versus 3,000 per month by the Conference Board and UMich’s 1,000 per month, tracks historical spending better than those surveys. Recently, the Piper Sandler polling has shown people to be more upbeat and in sync with their spending than in the other surveys.
More broadly, the big economic sentiment indicators may have become unmoored from the actual economy. After all, they’ve been falling even with low unemployment, solid growth, and a record stock market. According to a recent report by Goldman Sachs economist Joseph Briggs and Sarah Dong, people’s happiness deteriorated sharply in 2020 and hasn’t recovered in tandem with the economy and the stock market. And that extends across all cohorts and political partisans, and among homeowners and renters alike.
Citing a paper from University of Chicago economist Sam Peltzman, the Goldman report said people have become more downbeat on the state of the world for reasons unrelated to the economy. That paper found that a decline in confidence in nearly all societal and government institutions since 2016 more than offset an improvement in finances. The sentiment surveys may reflect that general decline more than shifting views about the economy. Reps for the Conference Board and UMich surveys couldn’t be reached.
That we’re less happy than we used to be probably qualifies as a “No s—, Sherlock” observation. But these consumer surveys still are followed as indicators of future spending. Indeed, average consumer expectations for business conditions are one of the components of the Conference Board’s Leading Economic Index, along with redoubtable measures such as new orders, building permits, and financial conditions. The problem is, feelings don’t matter much anymore, at least not as indicators of the economy.