Economy

Beyond Sentiment: How Consumer Spending Defies Economic Headwinds

U.S. economy shows resilience with strong spending despite negative sentiment and rising inflation.

byEditorial Staff

September 29, 2025, 8:00 AM

Hand holding money with coins and a speech bubble

A hand holds cash amidst scattered coins and a speech bubble, symbolizing consumer spending. By MDL.

Executive Summary

The U.S. economy is showing unexpected resilience with strong consumer spending and robust GDP growth, contrasting sharply with widespread negative consumer sentiment and persistent inflation.

This economic paradox is partly attributed to “vibes,” pandemic-era savings, and a “K-shaped” economy, while President Donald Trump’s trade policies are contributing to inflationary pressures.

Despite current strength, the economy faces potential headwinds from a slowing job market, increased consumer debt, an overvalued stock market, and the ongoing impact of tariffs.

The Story So Far

The U.S. economy is currently demonstrating a paradoxical resilience, with strong consumer spending and GDP growth persisting despite widespread negative consumer sentiment and rising inflation. This is partly due to consumers still benefiting from pandemic-era savings and ultra-low mortgage rates, alongside a “K-shaped” economic recovery where wealthier Americans continue to spend. However, inflationary pressures are also being fueled by President Trump’s trade policies, including new tariffs, amidst a slowing job market and increasing reliance on credit.

Why This Matters

The U.S. economy’s current resilience, driven by robust consumer spending despite widespread negative sentiment and rising inflation, suggests a complex and potentially bifurcated economic landscape. However, this strength is precarious, as inflationary pressures, partly fueled by President Trump’s trade policies, along with a slowing job market and increasing consumer reliance on debt, pose significant risks that could undermine future stability and consumer purchasing power.

Who Thinks What?

Economists and recent economic data indicate unexpected resilience in the U.S. economy, characterized by strong consumer spending, robust GDP growth, and forecasts of continued expansion, despite various headwinds.

The public and consumers hold a sharply negative perception of the economy, driven by persistent price increases and rising inflation, which has led to some of the lowest consumer sentiment readings since 1952.

Economists explain the paradox by citing factors like “vibes,” lingering pandemic-era savings, and a “K-shaped” economy, but also warn of future challenges including a slowing job market, inflationary pressures from President Trump’s tariffs, rising consumer debt, and potential government shutdowns.

The U.S. economy continues to exhibit unexpected resilience, marked by strong consumer spending and robust GDP growth, even as widespread negative consumer sentiment and rising inflation persist. Despite public dissatisfaction, recent data indicates Americans are maintaining their spending habits, driving economic expansion amid potential headwinds such as tariffs and a slowing job market.

Economic Performance vs. Public Perception

In August, consumer spending increased by 0.6%, a figure stronger than economists had anticipated, according to the Commerce Department. This growth mirrored a 0.6% rise in retail sales reported earlier in the month. Furthermore, a revised report for the second-quarter gross domestic product revealed the fastest growth rate in nearly two years, largely buoyed by robust consumer activity.

However, this economic strength contrasts sharply with public opinion. The University of Michigan’s consumer sentiment index fell to 55.1 in August, marking one of the lowest readings since 1952. This sentiment is influenced by continued price increases, with the annual inflation rate reaching 2.9% in August, the highest since January, as per Bureau of Labor Statistics data.

Factors Influencing the Economy

President Donald Trump’s trade policies, specifically new tariffs on drugs, furniture, trucks, and cabinets, are also contributing to inflationary pressures. Recent consumer price reports suggest these tariffs are partly responsible for the slow but steady rebound in inflation. Additionally, the U.S. labor market experienced a standstill in June, with the first job losses recorded since December 2020.

Despite these challenges, the Atlanta Fed’s GDPNow tool forecasts an annual economic expansion rate close to 4% for the current quarter. This projection highlights the economy’s ability to “hum along” despite a mix of slow hiring, rising prices, high interest rates, and low consumer confidence.

Understanding the Discrepancy

Economists attribute part of this paradox to “vibes,” a term used to describe consumer behavior during the post-pandemic inflation crisis where spending continued despite negative sentiment. Many Americans still benefit from pandemic-era savings and ultra-low mortgage rates, which help them manage increasing costs. Oren Klachkin, an economist at Nationwide Financial Markets, noted that “downbeat sentiment stands in stark contrast to encouraging hard data,” emphasizing the continued willingness of consumers to spend.

Another contributing factor is the “K-shaped” economy, where wealthier Americans continue to thrive while those with fewer resources face struggles. Federal Reserve Chair Jerome Powell acknowledged this bifurcation, stating that while spending might be skewed towards higher earners, “it’s spending,” and thus contributes to overall economic movement. Consumer spending accounts for over two-thirds of U.S. GDP, making its persistence crucial for economic stability.

Potential Headwinds

Despite current resilience, several warning signs suggest the economy could face future challenges. Hiring has been in a yearlong slump, with recent job gains falling below the level needed to keep pace with population growth. A surge in the Black unemployment rate could also precede broader layoffs.

A looming government shutdown poses another threat, particularly if the Trump administration proceeds with potential permanent eliminations of furloughed government jobs. Consumer spending may also moderate in the coming months, especially if sentiment continues to decline and households rein in discretionary purchases. Many Americans are increasingly relying on credit cards and buy-now-pay-later loans, leading to a decline in credit scores at the fastest pace since the Great Recession.

The stock market, while reaching record highs, is also showing signs of being overvalued relative to companies’ sales and profit expectations, raising concerns about a potential “AI-induced bubble.” Furthermore, tariffs continue to squeeze profit margins for wholesalers, suggesting that businesses may soon need to pass more of these costs onto consumers, potentially further impacting inflation.

The U.S. economy’s ability to withstand negative sentiment and various economic pressures largely hinges on sustained consumer spending. While this resilience is currently evident, the interplay of employment trends, trade policies, and consumer debt levels presents a complex outlook that could significantly influence the economy’s trajectory moving forward.