Americans once said one thing about their feelings about the economy and did other things with actual dollars. But that may be changing.
The disconnection between consumer confidence and weak readings on stable employment, income and GDP data, previously described as “The atmosphere” of economist Kyla ScanlonShe first used the term in 2022 Alternative Positions.
Inflation has been the highest for more than 40 years, and the Federal Reserve’s soaring borrowing costs are increasing and attacking hiking makes auto loans and mortgages more expensive.
But as the labor market becomes stronger, consumers continue to spend. In addition to a brief dip in GDP, the economy avoided a recession. Confidence surveys also increasingly reflect partisan differences rather than actual economy.
Fast forward to 2025. After Donald Trump launched the trade war, consumer sentiment collapsed and GDP shrank again, eager to buy imported goods before higher tariffs. Still, wages remained lowered and inflation was not affected by the feared tariffs.
but Emotional recovery a little It remains below December 2024 levels after Trump postponed its highest tariff rate.
“While this month’s significant improvement, consumers remain alert and worried about the economic trajectory,” the latest survey from the University of Michigan said.
Meanwhile, the Trump administration is cutting spending and work, bringing a ripple effect that touches contractors and even some real estate markets.
Businesses who are uncertain about the direction of the economy and tariffs have slowed down their recruitment. Student-Loan delays have increased, and AI eliminates many entry-level jobs from newly cast college graduates. Then Oil priceThis has jumped since Israel launched an air strike in Iran.
The cumulative effect is causing losses.
“In the past month, U.S. consumers have turned a blind eye to headlines and economic risks, and that’s what we’ve seen a slight increase in sentiment scores, but we have to consider where they are from,” Elizabeth Renter, a senior economist at Nerdwallet, said in a note Friday. “Better doesn’t necessarily mean good, even if it could mean hope.”
As a result, it has become increasingly difficult to deny so-called soft data about the economy and focus on hard data.
That’s because Fed Chairman Jerome Powell said he and his policymakers wouldn’t be right Until strict data on unemployment and inflation give them a clear reason. But something soft can leak into something hard.
“Unlike a few years ago, the ‘environment’ now has a greater impact on behavior and economic health,” the renter wrote. “That’s because unlike a few years ago, people don’t easily stumble and do better or rely on too much savings and debt tolerate luxury.”
She added that in fact, household debt is rebounding to pre-pandemic levels and beyond, weakening the ability to absorb unexpected expenses or unemployment.
Bill Adams, chief economist comica Banks have similarly set direct boundaries between consumer sentiment and actual spending.
He noted that in the May Retail Report, he noted that consumers would not only withdraw durable goods such as electronics and cars, which fell after an earlier jump to raise tariffs, but also struggled to pay for daily expenses such as groceries and restaurants.
Spending in building materials and garden supply stores also dripped heavily, indicating less investment in home improvements.
“The pullback in consumer spending last month appears to be weak as the decline in unrelated categories declines,” Adams wrote.
