With consumer spending robust and consecutive employment reports coming in ahead of expectations, many have been left surprised by the apparent strength of the U.S. economy in the face of external pressures.
“Resilience” has been the watchword of many observers and analysts, including Sharmin Mossavar-Rahmani, head of investment strategy at Goldman Sachs, who told Bloomberg in May that people “continue to underestimate” the country’s ability to weather economic headwinds.
“The economy has been impressively resilient, given all that it has had to deal with, from higher tariffs and heavy-handed immigration policy to the Iran war,” Mark Zandi, chief economist at Moody’s Analytics, wrote in a recent blog post.
And remarking on consumer spending in an interview last month, Bankrate’s Ted Rossman similarly said it was “amazing” how well it has held up despite the war putting pressure on prices, especially those paid at the pump.
Gasoline prices are up some 40 percent since the war began on February 28, and the trend has heavily weighed on inflationary data. On Wednesday, the Department of Labor said the surge in fuel costs had helped push annual inflation to its highest level since April 2023, with several other categories also seeing increases.
But while inflation is picking up pace, resilient spending has been credited with the U.S. economy adding 172,000 jobs in May, following 179,000 and 214,000 gains over the previous two months.
But the fortitude of the U.S. consumer has not shown up in surveys concerning the country’s economic trajectory or Americans’ personal financial situations.
Americans Are Not Feeling Resilient
According to a report released Monday by the Federal Reserve Bank of New York, the share of Americans who consider their economic circumstances “much worse” than a year ago jumped to 13.3 percent in May, up from 10.6 percent in April and marking the highest reading since July 2022. Combined with those who consider themselves at least “somewhat” worse off, the figure rises to 44 percent—the highest level since January 2023.
And the results have been echoed across other surveys, with the University of Michigan finding that consumer sentiment has fallen to a record low, and the Conference Board—in its own monthly confidence gauge—revealing that this dipped last month on the back of fears over inflation and pessimism about business and labor market conditions.
What Explains Disparity?
Michael Weber, a professor of finance at ESMT Berlin, told Newsweek that the economy as well as Americans’ household finances seemed “in better shape than sentiment surveys suggest.”
However, he said that strong, headline figures appeared to be masking important caveats within the data.
While still relatively strong in aggregate terms, Weber said that consumer spending—estimated to prop up around two-thirds of U.S. GDP—had become “increasingly driven by households with substantial asset holdings, whose portfolios have benefited from rising markets even amid broader macroeconomic uncertainty and recent volatility.”
According to analysis conducted last year by Moody’s Analytics and quoted in The Wall Street Journal, the highest-earning households—those making $250,000 a year—now account for around half of all consumer spending, the highest share on record going back to 1989.
And even aside from consumers’ perceptions of economic conditions, economist Douglas Holtz-Eakin told Newsweek that Americans are experiencing some “clear strains”—exhibited by rising credit card delinquencies and wage growth that is failing to keep pace with inflation.
Part of the disconnect between consumer sentiment and economic conditions may also be a question of priorities, Weber said, given that the former has proven itself “highly sensitive to inflation, and especially to salient prices such as gasoline.”
“So even when aggregate activity looks solid, households may remain pessimistic if everyday prices feel elevated,” he said.
It is a trend that has played out across successive administrations. President Donald Trump is currently shouldering the blame for rising prices, with his overall economic approval sliding as a result. But President Joe Biden’s popularity—and Americans’ perceptions of their financial situations—likewise appeared to hang on inflationary trends.
The New York Fed notes that the last time this many Americans considered themselves “much worse off” was July 2022, the month after inflation reached a 21st-century high of 9.1 percent and around the time Biden’s approval hit a nadir across a selection of polls.
But Holtz-Eakin described the current “magnitude” of negative sentiment as “really striking” and said frustrations were now so widespread that Trump no longer appeared to be benefitting from the partisan splits that presidents often rely on in such surveys. While Republicans continue to be more optimistic than their Democrat or independent counterparts across surveys, GOP confidence has been steadily declining.
He said the current administration could suffer the same reputational crisis that plagued its predecessors, especially if it cannot tame rising prices and if wages continue to stagnate.
“Biden never recovered,” he said. “Trump is in the same territory now and should be focused on getting inflation under control.”
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