Consumer Says: Calm waters in May, but rougher seas could still lie ahead

As May wraps up and we await the release of the Bureau of Economic Analysis’ personal consumption expenditures report, we are focused on consumer spending.

Temperature check on the U.S. economy

In each edition of Consumer Says, our economists give an updated rating for current economic conditions using temperature as a metaphorical metric. Our “perfect temperature”--signifying an economy that is strong but not overheating–is 70 degrees. 

🌡️ Current temperature: 66 ℉

In our previous newsletter, we rated the economy at 65 degrees. The picture remains similar through the end of this month, ticking one degree higher mainly because hard economic data in the interim didn’t contain any nasty surprises.

Low unemployment, cooling inflation, stable spending and some de-escalation of trade spats (or re-escalation followed quickly by de-escalation concerning Europe this week) are all continuing to support the U.S. economy despite policy volatility and concerns for future disruption. Plenty of stiff headwinds remain in the pipeline, with tariff-related cost increases likely to show up in more consumer goods going forward. Our analysis, released last week, showed that consumers tend not to fully recognize the bite of price increases until they face them head-on in the marketplace. Anticipating sticker shock and experiencing sticker shock are two different beasts. The impact on consumers, their finances, and their willingness to keep spending is yet to be seen.

Consumer says:

😵‍💫 Mixed readings on Consumer Sentiment: Two broadly cited measures of consumer sentiment have recently been at odds: The preliminary May reading for the University of Michigan’s sentiment index dropped to its second lowest reading on record amid rising inflation worries, whereas the Conference Board’s consumer confidence indexed released earlier this week showed a strong recovery since April. The Conference Board’s survey includes a labor market component, which may partly explain the relatively rosier outlook portrayed by this survey relative to the U. Mich index.

• 📣 Consumer says: Morning Consult’s daily Index of Consumer Sentiment offered a preview of this more recent uptick in sentiment picked up by the Conference Board survey. The Morning Consult index has a much larger sample size than both other surveys and offers a continuous view of consumer mindsets. Economic news and consumer perceptions have been extra volatile lately due to factors like trade policy uncertainty, so surveys with smaller samples and shorter collection windows risk capturing only a brief snapshot and could miss the larger trend.

🛒 April spending growth cooled from March: The Census Bureau’s report on retail sales showed a modest 0.1% increase in nominal spending last month, suggesting the strong uptick in March was likely driven partly by purchases pulled forward due to tariff uncertainty. Later this week, the BEA will release the more holistic measure of personal consumption expenditures (PCE), including services categories not covered by the retail survey that make up a large portion of overall spending.

• 📣 Consumer says: Morning Consult’s U.S. consumer spending data, which is similar to PCE in that it covers a broader array of goods and services categories than just retail, showed a slight decline in real spending in April. However, most of the decline was most pronounced among high-income households, who had been increasing their spending for much of 2025. Our analysis published this week digs deeper into how high-earning individuals disproportionately drive the top-line trend for expenditures. Consequently, the April pullback shown in Morning Consult’s data suggests we may see a weaker monthly PCE reading.

💼 Labor market remains quietly resilient: Next week, all eyes will be on the labor market with the Bureau of Labor Statistics’ JOLTS report for April and Employment Situation report for May. While hiring is likely to remain weak as many companies were stuck in wait-and-see mode through last month, there is still little sign of layoffs mounting to worrying levels as jobless claims have stayed relatively flat through May.

• 📣 Consumer Says: Morning Consult’s U.S. Unemployment index continues to show low levels of joblessness among adults who want to work, suggesting a foundation of financial stability for most consumers is helping to counteract the future worries and uncertainty dominating the economic news cycle.