Consumer Says: Consumer Spending a Bright Spot in U.S. Economy

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 ℉

Our rating of a 64-degree economic “temperature” still holds, but with emerging downside risks. The Federal Reserve cut its benchmark interest rate due to fears of a weakening labor market – unemployment remains low, but hiring and job openings are lackluster by historical standards. More cooling may be imminent as Morning Consult’s Lost Pay & Income data has crept up. Inflation has been reheating since April, stoking fears of stagflation. However, consumer spending continues to be a driver of strength in the U.S. economy, which is still performing relatively well despite headwinds.

Consumer says

📊Labor market concerns grow: Data from the Bureau of Labor Statistics indicate that the job market is cool for job-seekers, with both the hiring rate and job openings relatively muted by historical standards. However, unemployment and layoffs remain low, suggesting that most prime-aged Americans are employed and staying in their jobs.

• 📣Consumer Says: While Morning Consult’s Unemployment index remains low supporting the narrative of a healthy job market for most workers, there are signs of further cooling—specifically, a gradual increase in the share of people reporting lost pay or income in the past week.

🧺 The Fed cut its benchmark rate: After keeping rates steady through 2025, the Fed lowered interest rates by a quarter point, citing the cooling labor market as a key factor. Two more cuts are expected this year, which should eventually bring relief to consumers, especially those burdened by debt.

• 📣Consumer Says: Although the Fed has held rates steady since December, the share of consumers who believe rates are too high has fallen by 10 percentage points to 51%. Because monetary policy typically works with “long and variable lags,” it often takes time for changes in the federal funds rate to affect consumer rates. As a result, relief from recent and upcoming rate cuts will likely take several months to materialize.

🛒 Consumer spending underpins U.S. economic strength: Retail sales surpassed expectations in August, rising 0.6%. Personal consumption expenditures spending data, set to be released on Friday, are also expected to show strong results. Despite broader economic concerns, consumer spending remains a bright spot for the economy.

• 📣Consumer Says: August marked the seventh consecutive month of positive year-over-year growth in Morning Consult’s consumer spending data, as spending continues to be a bright spot in an economy facing headwinds from a cooling labor market and reheating inflation. All three income cohorts tracked by Morning Consult spent more this August than the same month a year ago. Discretionary spending in particular remains strong, with recreation, apparel and alcohol continuing to trend up even after adjusting for seasonality and inflation.