Americans spent 0.9% more in August than they did in July. After adjusting for inflation, the gain reached 0.6%, the strongest monthly increase since March 2025. Households don’t act like people who feel gloomy, even though surveys say they do.
That gap between mood and behavior has lasted six years since the COVID-19 pandemic. Consumer sentiment has bounced around during that time, but it hasn’t returned to pre-pandemic levels, according to University of Michigan Consumer Sentiment Index data. The Conference Board’s Consumer Confidence Index also fell in September.
Spending Tells a Different Story
Chicago Federal Reserve President Austan Goolsbee said his bank had tracked sentiment because it once served as a useful leading indicator of consumer spending. That’s changed. “And over the last six years, it has become a much less good leading indicator of consumer spending,” he told journalists at an event focused on the disconnect. Consumer spending makes up about 70% of the U.S. economy, so a weak signal matters.
When sentiment stops doing its historical job, Goolsbee said, Chicago Fed economists turn to measurable statistics instead: inflation, spending, hiring and economic growth. The Fed’s preferred inflation gauge, the personal consumption expenditures price index, showed price increases had stabilized while consumers kept spending heavily.
Bank of America’s card data points the same way. “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,” the bank said last month in an analysis of its customers’ spending.
A Cautious Job Market
The labor picture looks softer. The Labor Department’s monthly jobs report showed September payroll growth had slowed, and wages in the previous month hadn’t kept pace with inflation. Economists described a “low hire, low fire” market rather than one marked by layoffs.
Ken Mahoney, chief executive at Mahoney Asset Management, put it plainly. “Companies are not adding many people, and they are not laying many off either,” he said. “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.”
What the Fed Is Watching Instead
Researchers at the event said sentiment now offers less help as a leading indicator for spending and Federal Reserve decisions, though a closer look at survey data could still prove useful. Surveys usually report the median response. The full distribution of answers can reveal patterns the median hides, including whether a small group accounts for most spending.
Goolsbee flagged that risk. “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 wants to examine parts of sentiment surveys, including inflation expectations, as potentially better guides to the business cycle than the headline number. 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 work better. “I put out the call for research,” he said. “Tell me if that’s a good measure.”
Why This Matters:
Policymakers set interest rates with imperfect information, and a sentiment gauge that no longer predicts spending gives them one less reliable input. The Chicago Fed’s answer is to rely on hard numbers for prices, hiring and spending, and on market signals such as Treasury yields, rather than on how people say they feel. That’s a sensible instinct for an institution whose decisions ripple through every borrower and saver. The data also show households spending by choice, not necessity, with a labor market that’s slow but not shedding workers. Still, wages lagging inflation and a possible concentration of spending among a few households are the vulnerabilities to watch. If the spending that carries about 70% of the economy rests on a narrow base, that’s a risk no survey headline will reveal.