Americans spent more in August even as wages the previous month failed to keep up with inflation and September payroll growth slowed. Consumer spending climbed 0.9% from July, or 0.6% after adjusting for inflation—the strongest monthly increase since March 2025. The figures point to resilient spending despite weaker sentiment and a labor market where hiring has cooled.
Spending and the Distribution Question
Consumer spending makes up about 70% of the U.S. economy. The University of Michigan Consumer Sentiment Index has moved up and down over the past six years without returning to pre-pandemic levels, while the Conference Board’s Consumer Confidence Index fell in September.
Chicago Federal Reserve President Austan Goolsbee said the Chicago Fed had followed sentiment because it once offered a useful early signal of consumer spending. “And over the last six years, it has become a much less good leading indicator of consumer spending,” he told journalists at an event about the gap between sentiment and spending.
Bank of America said last month that its customers were spending more on discretionary goods and services. “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 in an analysis of customers’ card spending.
Total spending figures don’t show how widely people share that spending. At the event, Goolsbee said a small share of people might account for most of it. “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.
Slow Hiring, Wages Under Pressure
The Labor Department’s monthly jobs report showed that September payroll growth had slowed. Wages in the previous month hadn’t kept pace with inflation. Economists described conditions as “low hire, low fire,” rather than a wave of layoffs.
“Companies are not adding many people, and they are not laying many off either,” said Ken Mahoney, chief executive at Mahoney Asset Management. He said firms had already “right-sized” earlier and that AI might be reducing the edge of new hiring, while stressing that the situation wasn’t 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,” Mahoney said. Subdued hiring and wage growth below inflation describe the labor conditions behind the gap between household sentiment and continued spending.
What the Fed Measures
When sentiment stops matching its historical role, Goolsbee said, Chicago Fed economists turn more to measurable statistics, such as inflation, spending, hiring and economic growth. The Fed’s preferred inflation measure, the personal consumption expenditures price index, showed that price increases had stabilized while consumers continued to spend heavily.
Researchers at the event said closer analysis of survey responses could still prove useful, even as overall sentiment becomes less helpful in forecasting spending and Federal Reserve decisions. Median survey answers can hide how responses are distributed, including whether a small group accounts for most spending.
Goolsbee said he wanted to study parts of sentiment surveys, including inflation expectations, as possible business-cycle indicators. Jerome Powell, described as the last Federal Reserve chairman, often stressed keeping long-term inflation expectations “well anchored.” Goolsbee said he preferred market-based measures, such as signals from Treasury yields, while some economists argue that survey-based expectations work better. “I put out the call for research,” he said. “Tell me if that's a good measure.”