Consumer spending surged 0.9% in August from July, even as Americans report persistent economic gloom six years after the COVID-19 pandemic, creating a disconnect from strong consumer spending and employment data. Federal Reserve and private economists are turning their analytical focus away from subjective sentiment surveys toward objective indicators like inflation, spending, and growth.
Six years after the COVID-19 pandemic, Americans remain unusually gloomy about the economy, and objective economic reports have done little to change public perception. University of Michigan Consumer Sentiment Index data shows that consumer sentiment has ebbed and flowed over the last six years without ever climbing back to pre-pandemic levels. The Conference Board’s Consumer Confidence Index also dropped in September. This persistent malaise exists alongside strong consumer spending and labor market recovery, presenting economists and policymakers with a post-pandemic disconnect that defies standard economic models.
Federal Reserve Drops Sentiment Indexes
Historically, consumer sentiment served as a reliable leading indicator of economic direction, operating on the premise that consumer confidence fuels spending and pessimism precedes economic downturns. Consumer spending itself accounts for roughly 70% of the U.S. economy. As subjective measures have strayed from their traditional roles, policymakers are turning toward quantifiable, objective statistics.
“From our perspective at the Chicago Fed, we were interested in consumer sentiment for a narrow reason, which is it was a good leading indicator of consumer spending”
Austan Goolsbee, Chicago Federal Reserve President
When forecasting future economic conditions, Chicago Federal Reserve economists now place greater reliance on quantifiable, objective statistics including inflation, spending, hiring, and overall economic growth.
Data Counters Public Perception
The personal consumption expenditures price index—the Federal Reserve’s preferred inflation gauge—indicates that price increases have stabilized and consumers maintain high spending levels.
Consumer spending surged 0.9% in August from July. Adjusted for inflation, spending grew 0.6%, marking its strongest monthly gain since March 2025. Meanwhile, the Labor Department’s monthly jobs report indicated that September payroll growth softened and wages lagged behind inflation, though analysts characterized the environment as a stable low hire, low fire
situation rather than an indicator of impending layoffs.
“Companies are not adding many people, and they are not laying many off either, A lot of firms already right-sized earlier, and AI may be taking a little of the edge off new hiring, but this is not a wave of firings. The 12-month average gain going into this report was only about 45,000 jobs a month, so September fits a slow trend more than a break in the economy.”
Ken Mahoney, chief executive at Mahoney Asset Management
Frustration Rooted in Costs
Rapid price increases on daily necessities such as rent, groceries, energy expenses, insurance, and medical out-of-pocket costs have outpaced average inflation rates and outstripped labor earnings growth over recent months.
Housing market dynamics compound these frustrations. Although a 65% homeownership rate insulates many residents, elevated home prices and mortgage rates near 7.5%—compared to existing 3% mortgages—have created a locked-in effect where homeowners feel trapped and unable to move freely. Younger prospective buyers face affordability hurdles. Beyond housing, wealth inequality figures show the top 0.1% controlling 15% of household net worth in America, up from 8.6% in 1989. Analysts also cite compounding pressures from political polarization, social media sensationalism, and energy price spikes driven by wars in the Middle East that have pushed national gas prices toward $5.
Researchers Question Survey Accuracy
In 2024, the University of Michigan transitioned its data collection from traditional phone interviews to online surveys. While this change increased sample sizes, researchers note that online respondents may report polarized or sensationalized views that differ from their actual financial behavior.
To capture more accurate economic signals, researchers are looking beyond median survey results to examine full response distributions. Analyzing distributions helps identify whether spending is concentrated among a small demographic.
The Conference Board’s Consumer Confidence Index also dropped in September.
