Consumer Says: Consumer spending remains resilient despite disappointing releases on jobs and inflation

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: 64 ℉

At the end of June, we rated the economy at 64 degrees. At this point in August, we are maintaining the same temperature. While the latest jobs and inflation figures brought some disappointing news, according to Morning Consult’s data, consumers continued to spend in July. Consumer sentiment is also relatively stable, prompting us to hold the temperature for another two weeks.

Consumer says:

📊Consumer sentiment is stable: This week, the University of Michigan will release the preliminary results for its consumer sentiment survey. According to the consensus, consumer sentiment is expected to increase from 61.7 to 62.2. The slight uptick is encouraging, as the University of Michigan’s consumer sentiment index plummeted earlier this year and is recovering slowly.

• 📣Consumer Says: Morning Consult surveys close to 5,000 consumers daily, asking the same five main questions posed by the University of Michigan. Like the University of Michigan (averaging the daily figures for their survey period), Morning Consult data shows a slight uptick for the early days of August compared to July. We will note, however, that not everyone feels the same about the economy. As we have reiterated earlier, while the higher-income cohort’s (households making $100k+) sentiment has almost reached the pre-pandemic levels, for those making under $50k, consumer sentiment is still far below the March 2020 levels.

🛒 Consumer spending is growing, just slightly slower. One of the first government releases of consumer spending will be on Friday: the advance retail sales from the U.S. Census. Retail sales increased in June, but the growth was weak. Consensus calls for a weaker increase for July, and we agree. 

• 📣Consumer Says: Morning Consult’s spending data (which has a different methodology) also grew for July, but at a weaker rate than in June. Although there were many promotions around Amazon’s Prime Day, in addition to increasing their apparel spend, consumers also spent more on hotels, airfare and recreation, according to Morning Consult consumer spending tracker. While this clear divergence between high-income and low-income consumers is apparent in the consumer sentiment data, it is not as clear in consumer spending data. As we reiterated earlier, high-income households have a considerable sway in total consumer spending, as they are the biggest spenders. However, unlike the sentiment data (where their sentiment spiked, while the lower-income households’ have stayed stable), high-income households’ consumer spending has stayed relatively stable in the last few months. While higher consumer sentiment figures are encouraging, they do not always translate to higher dollars spent. 

🧺 Latest on the consumer price index: While the top-line inflation figures came in below market expectations, prompting a higher share of market watchers forecasting the FED cutting rates in September, that was the only good news out of this CPI release. If we look at core goods, prices rose 3.1% y/y, the highest since February 2025. For some imported categories, even at consumer price levels, the potential effects of tariffs are visible. For example, household furnishings prices have been rising since May 2025. While the growth rate may not seem large and is certainly lower than the increase from the pandemic period, looking at the longer history and excluding the pandemic period, we note that prices for this category generally fall. More recently, that was the case too, until tariffs came into play. Generally speaking, these imported goods used to have a deflationary effect on prices, but with tariffs, not anymore. 

• 📣Consumer Says: Price increases deter buyers, especially those who remain inflation-weary. Morning Consult’s inflation and supply chains tracker shows the effects of these increases. For household furnishings, we can see that price sensitivity is increasing, especially among higher-spending consumers ($100k+ households). Higher price sensitivity will indicate lower dollars spent down the line.