Consumer Says: Economic Headwinds Are Picking Up

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: 63 ℉

Economic conditions are getting chillier, but so far not by much. We nudged our “temperature” gauge slightly lower this week as conditions gradually worsened across some of our critical economic metrics: Both inflation and unemployment appear to be ticking higher, and consumer sentiment has recently been sliding. While observed spending levels haven’t yet taken a hit, all signs point to cooler demand in recent weeks.

Consumer says

🛒 Consumer sentiment trends lower amid shutdown: Even without government data to “officially” inform the public on the state of the economy, consumers are making judgements about business and personal financial conditions–and views are deteriorating. The Conference Board reported that consumer confidence fell to its lowest level since April in September, and the University of Michigan’s consumer sentiment index is expected to show a similar decline. Expectations for the September retail sales report scheduled for next week call for positive growth, but at a slower pace than in August.

• 📣Consumer Says: Morning Consult’s daily ICS has been steadily trending down since the end of August, and the downslide appeared to accelerate over the past week as uncertainty from the government shutdown stokes concern. The index has now erased its summer gains and sits close to its 2025 lowpoint in April, when tariff and inflation worries reached a fever pitch in the wake of the Trump Administration’s “Liberation Day” announcements. Meanwhile, the Consumer Health Index (CHI), which includes both labor and sentiment components and has a historically strong correlation with spending growth, has been cooling modestly but consistently over the past month, supporting the expectation that retail sales expansion likely slowed.

📊 Consumers continue to notice price increases: While a continuation of the government shutdown may delay the release of inflation numbers currently scheduled for next week, forecasters believe annual price growth picked up again in September. According to Bloomberg, the consensus estimate for annual consumer price growth is 3.1%, a rate that would be the highest since May 2024.

• 📣Consumer Says: Morning Consult’s indexes tracking inflation pressures among consumers suggest that households are increasingly noticing price hikes. The Price Surprise index tracks the prevalence of consumers being surprised by higher than expected prices and has historically maintained a strong correlation with inflation. This metric has been climbing since April, with goods categories being particularly impacted as tariff costs filter through to consumer prices.

💼 Alternative data fills void of missed jobs report: With key data releases by agencies including the Bureau of Labor Statistics suspended amid the ongoing government shutdown, we have yet to see official numbers for nonfarm payrolls, unemployment and wage growth for the month of September. Alternative data sources offered mixed results, with ADP showing a contraction in jobs and Revelio Labs reporting a modest increase. The Chicago Federal Reserve Bank’s recently released labor metrics, which include Morning Consult’s data as an input, estimated that unemployment stayed close to its August level of 4.3%.

• 📣Consumer Says: Morning Consult’s data aligned with the view of relatively stable employment conditions through the first half of September, which includes the BLS’s typical reference week. However, over the second half of the month and through the early days of October, the Unemployment Index has been climbing, erasing the improvements registered over the summer.