Consumer sentiment is back to near-record lows. But Americans are still spending. Here’s why

By Bryan Mena, CNN

Washington (CNN) — Americans are souring on the economy again to levels seen rarely in the post-World War II era, raising the question of what it means for spending, economic growth and other key metrics gauging the world’s largest economy.

Consumer sentiment fell this month to a final reading of 55.1, the University of Michigan said in its latest survey released Friday. The reading was the seventh-lowest on records going back to 1952.

Americans are growing pessimistic for the same reason they did so just a few months ago; fears of higher inflation, which could worsen because of President Donald Trump’s aggressive trade policy. On Thursday, Trump announced new tariffs on trucks, furniture and pharmaceuticals.

Americans are now also jittery over the labor market.

“Consumers continue to express frustration over the persistence of high prices, with 44% spontaneously mentioning that high prices are eroding their personal finances, the highest reading in a year,” said Joanne Hsu, the Michigan survey’s director, in a release.

“Interviews this month highlight the fact that consumers feel pressure both from the prospect of higher inflation as well as the risk of weaker labor markets,” she added.

What it means for the US economy’s future

Since the pandemic, sentiment hasn’t been a good predictor of future spending behavior, but the labor market might be.

In the summer of 2022 when inflation was raging at four-decade highs and consumer sentiment plunged to its lowest level on record, Americans continued to spend at a solid clip in the following months. And in 2023 when a standoff in Congress prompted sentiment to decline, Americans still splurged throughout that year, namely on concerts and travel.

American still haven’t reined in their spending: Personal consumption expenditures climbed 0.6% in August from the prior month, the Commerce Department said Friday, in the thick of the back-to-school shopping season. After adjusting for inflation, spending rose 0.4% last month.

“Recent data show consumers resumed spending over the summer, especially those with higher incomes. And why wouldn’t they? Unemployment is still low, nominal wages are still increasing and asset valuations are near all-time highs,” Richmond Fed President Tom Barkin said Friday at an event in Washington, DC.

The US labor market is slowing, with job growth sputtering and unemployed Americans taking longer to find a job, raising the risk of conditions deteriorating. That was a key reason why the Federal Reserve lowered interest rates last week for the first since December.

But unemployment remains low at 4.3% and layoffs haven’t surged, according to Labor Department data. That bodes well for spending in the coming months.

Higher-income Americans continue to spend

Americans with higher incomes continue to power the US economy while low- and middle-income households remain strained by the higher cost of living. That divergence is also becoming evident in sentiment surveys.

“It’s the higher-income people in the country who do the majority of the spending, and those are the same people who are more likely to have investments,” Stephanie Guild, chief investment officer at Robinhood, told CNN.

Major US stocks indexes have hit record highs repeatedly over the past couple of months, boosted by expectations of Fed rate cuts, continued AI fervor and solid company earnings. On Friday, stocks rose after Trump’s latest tariff announcements, on track to snap a three-day losing streak.

A resilient stock market is keeping some households with higher incomes from souring like their lower-income counterparts.

“Sentiment for consumers with larger stock holdings held steady in September, while for those with smaller or no holdings, sentiment decreased,” Hsu of the University of Michigan said.

Guild said that “with the market at record highs, despite the last few days, I definitely think it makes people feel comfortable about their savings.”

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