Americans spent 0.9% more in August than in July. After adjusting for inflation, spending rose 0.6%, the strongest monthly increase since March 2025. Yet consumer sentiment remains gloomy six years after the COVID-19 pandemic, even though the economy and jobs market have recovered.
The gap between what people feel and what they do has prompted the central bank’s analysts to rethink their tools. Consumer sentiment has fluctuated over the past six years, but it hasn’t returned to pre-pandemic levels, according to the University of Michigan Consumer Sentiment Index. The Conference Board’s Consumer Confidence Index also fell in September.
A Warning Light That Stopped Working
Chicago Federal Reserve President Austan Goolsbee told journalists his bank had tracked sentiment because it served as a useful leading indicator of consumer spending. That’s changed. “Over the last six years, it has become a much less good leading indicator of consumer spending,” he said at an event on the disconnect between sentiment and spending.
The stakes are large. Consumer spending accounts for about 70% of the U.S. economy. When sentiment no longer plays its historical role, Goolsbee said, Chicago Fed economists rely more on measurable statistics: inflation, spending, hiring and economic growth.
Those figures show price increases have stabilized, according to the personal consumption expenditures price index, the Fed’s preferred inflation gauge. Consumers kept spending heavily. Bank of America analyzed its customers’ card activity last month and said Americans “are still ramping up their discretionary spending across both goods and services, suggesting consumers are increasing their spending because they want to and not because they have to.”
Slow Hiring, Thin Paychecks
The Labor Department’s monthly jobs report painted a less comfortable picture for workers. September payroll growth softened, and wages in the previous month hadn’t kept pace with inflation.
Economists described a “low hire, low fire” labor market, not one defined by layoffs. “Companies are not adding many people, and they are not laying many off either,” said Ken Mahoney, chief executive at Mahoney Asset Management. “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 the report, he said, was only about 45,000 jobs a month, so September fits “a slow trend more than a break in the economy.”
Job seekers get little comfort from a market with few openings but no mass firings. Pay that trails prices offers little more.
Who Is Actually Doing the Spending?
Researchers at the event said sentiment is now less useful as a leading indicator for spending and Fed decisions. They said closer examination of survey data could still help. Surveys often report the median response, but the full spread of answers can reveal patterns that medians hide, including whether a small group accounts for most spending.
Goolsbee put the concern bluntly. “If we got into a world where 90% of the spending was done by 10% of people, we have to think about what does it mean for overall GDP (gross domestic product) growth and what is it going to mean for overall employment,” he said.
He also said he’s interested in parts of sentiment surveys, including inflation expectations, as possibly better indicators of the business cycle. Jerome Powell, described in the article as the last Federal Reserve chairman, often stressed keeping long-term inflation expectations “well anchored.” Goolsbee said he prefers market-based measures, such as signals from Treasury yields, while some economists argue survey-based expectations are better. “I put out the call for research,” he said. “Tell me if that’s a good measure.”
Why This Matters: Headline spending figures can hide who is carrying the economy. Goolsbee’s question about whether a small slice of households drives most purchases points to a risk: strong aggregate numbers may not reflect broad-based security. With wages trailing inflation and hiring slow, survey gloom may track pocketbook pressure that averages smooth over. The Fed’s interest in looking past medians to full distributions suggests policymakers need data showing how gains and strains are shared, not just the size of the totals. Decisions about interest rates and employment rest on that picture, and millions of households live with the results.