by Peter Jones, CFA
Executive Vice President
Research and Portfolio Management
The mood among American consumers, by many accounts, is grim. This sense of uncertainty and anxiety has intensified throughout 2025. Both military and trade wars continue to simmer as political divisions widen. The cumulative weight of inflation, coupled with concerns about the U.S. fiscal situation and interest rates that remain higher than their pre-COVID levels, all contribute to a collective unease. The alarmist tone of much of the media only serves to amplify these anxieties, creating a climate where apprehension seems to be the default setting.
Indeed, since the pandemic, we have observed a persistent breakdown between consumer attitudes and underlying economic fundamentals.
Source: University of Michigan
Historically, consumer confidence indices have served as reliable barometers of economic health. A confident consumer, one who feels secure in their job and financial future, is more likely to spend money, thereby driving economic growth. Conversely, a fearful consumer tightening their purse strings can create a self-fulfilling prophecy of economic slowdown. This is why we consistently emphasize that "as goes the consumer, so goes the U.S. economy."
Given this backdrop of widespread trepidation, one might expect to see a significant contraction in consumer spending. Yet, here lies the paradox: this negative sentiment is conspicuously absent from real-world data. Retail sales, a tangible measure of consumer behavior, continue to rise, defying prevailing pessimism. Whether it's online purchases, big-ticket items or everyday essentials, Americans are, by and large, still opening their wallets.
Source: FactSet
While surveys and anecdotes paint a picture of a cautious consumer, their actual spending habits tell a different story. The resilience of retail sales suggests that, despite their stated anxieties, consumers are either finding ways to cope with economic pressures, or their concerns haven't yet translated into a significant curtailment of discretionary spending.
At this juncture, with healthy consumer spending and a robust labor market in terms of both employment and wages, we are inclined to base our investment decisions on what consumers are doing rather than what they are saying. We will continue to prioritize the empirical evidence of economic activity over the fluctuating tides of sentiment. Rather than relying on measurements of consumer attitudes, we would change our view if we began to see undeniable cracks forming in the bedrock of the labor market — a sharp rise in unemployment or a material contraction in consumer spending. For now, while the American consumer may be in a bad mood, they're still shopping. And in the world of economics, action speaks louder than any lament.
Takeaways for the Week
Conflict in the Middle East has driven oil prices 19% higher in the last month
As expected, the Fed left interest rates unchanged at this week’s policy meeting
Despite general anxiety, consumers continue to spend