Economy | October 11, 2026
Consumer Sentiment Sinks While Spending Holds Up: America’s Split-Screen Economy
Americans are telling pollsters that the economy feels punishing even as shoppers keep spending, unemployment stays low and business investment remains firm. The gap is not a statistical glitch. It is a map of who is absorbing higher prices, higher borrowing costs and a slower-moving job market.
The headline economy is still expanding. The household economy feels much less forgiving.
On paper, the United States does not look like an economy that has stopped moving. Real gross domestic product grew at a 2.2% annual rate in the second quarter after 2.5% growth in the first, according to the Bureau of Economic Analysis. Retail and food-service sales jumped 1.2% in August. Real consumer spending rose 0.6% in the same month. The unemployment rate was 4.2% in September, a level that remains low by historical standards.
Yet the mood is bleak. The University of Michigan’s preliminary October consumer sentiment index fell to 46.3, and its measure of current economic conditions dropped to 44.7. Survey director Joanne Hsu said lower-income consumers and people with smaller stock portfolios suffered especially sharp declines in sentiment, with frustration over the cost of living continuing to mount. One-year inflation expectations in the Michigan survey rose to 4.7%, while long-run expectations increased to 3.5%.
That divergence is the central economic story heading into mid-October. It is possible for aggregate spending to be strong while many families feel worse off. It is possible for unemployment to stay low while hiring becomes harder to find. It is possible for inflation to cool from an earlier peak while the price level remains high enough to keep groceries, insurance, rent, utilities and financing costs painful. The same data can describe a resilient economy and a strained household sector because those are different questions.
The consumer is spending — but not from the same starting line
Demand versus lived cost
August’s spending data were strong in both nominal and inflation-adjusted terms. BEA reported that personal consumption expenditures rose 0.9% in current dollars and 0.6% after adjusting for prices. Retail and food-service sales rose 1.2% from July and were 6.0% above August 2025, according to the Census Bureau. Those figures help explain why the economy has continued to expand despite higher borrowing costs and repeated shocks to energy and goods prices.
The composition of that spending matters. Real disposable personal income was flat in August while real consumption rose. The personal saving rate stood at 4.1%. That does not mean every household was drawing down savings, but it does underscore the pressure created when consumption rises faster than inflation-adjusted after-tax income in a given month.
The Federal Reserve’s September meeting minutes provide another clue. Policymakers noted that consumer spending remained solid and that stock-market gains were supporting spending among higher-income households. At the same time, they said low- and moderate-income households were under strain as higher energy prices weighed more heavily on real disposable income. That split helps reconcile booming restaurant receipts or travel demand with pessimistic household surveys: spending can remain strong when the households with the greatest financial cushions keep buying, even as a large share of the public feels pinched.
What the aggregate data capture
Total consumer dollars, inflation-adjusted spending, retail receipts and GDP record what the economy produced and purchased. They are weighted by spending, so households with more purchasing power have a larger effect on the totals.
What sentiment captures
Surveys capture perceptions of finances, prices, job prospects and buying conditions. A household can still spend on food, fuel and rent while reporting that its financial situation has deteriorated.
The labor market has low unemployment — and low momentum
Stable is not the same as easy
September’s jobs report was not a collapse, but it was unmistakably soft. Nonfarm payrolls increased by 29,000, far below the pace Americans became accustomed to earlier in the expansion. BLS said payroll employment had grown by an average of 45,000 per month over the prior year. July and August were revised down by a combined 60,000 jobs, leaving July with a 10,000 decline and August with a 133,000 increase.
At the same time, the unemployment rate changed little at 4.2%. The labor-force participation rate was 61.8%. Layoffs have not surged, and the August Job Openings and Labor Turnover Survey counted 7.1 million openings, 5.2 million hires and 1.6 million layoffs and discharges. The economy has not moved into a classic mass-layoff recession. Instead, the labor market increasingly looks like a place where people who already have jobs are relatively secure, but people who need a new job may find fewer doors opening quickly.
The details reinforce that low-dynamism picture. Long-term unemployment was about 1.9 million people in September, accounting for 27.1% of the unemployed. Average hourly earnings were up 3.0% from a year earlier. Wage growth near 3% is still positive, but it does not create much psychological breathing room when consumers expect the prices of food, gasoline, rent and medical care to continue rising briskly.
September labor-market snapshot
The New York Fed’s September Survey of Consumer Expectations makes the paradox even clearer. Respondents became somewhat more optimistic about job loss and job finding, but their views of household finances deteriorated. The perceived probability of losing a job over the next 12 months fell to 13.5%, the lowest since December 2024, while the perceived probability of finding a job after losing one rose to 46.1%. Yet expected earnings growth slipped to 2.6%, and more households reported worse financial conditions than a year earlier or expected them to worsen.
Inflation is no longer just a number — it is a financing condition
Rates transmit the pain
BEA’s preferred inflation gauge showed that the PCE price index was up 3.4% from a year earlier in August, while the core index excluding food and energy was up 3.0%. Those figures were cooler than some investors had feared, but they remain above the Federal Reserve’s 2% goal. Households do not experience inflation only through the monthly price index. They also experience it through the interest rates required to contain it.
In September, the Federal Open Market Committee unanimously raised the federal funds target range by a quarter percentage point to 3.75% to 4.00%, the first increase since 2023. Minutes released October 7 show that policymakers viewed inflation risks as tilted to the upside and that most expected another increase could be appropriate by year-end, while emphasizing that future decisions would depend on incoming data. The next FOMC meeting is scheduled for October 27–28.
Housing shows the transmission mechanism in real time. Freddie Mac said the average 30-year fixed mortgage rate rose to 7.40% in the week of October 8, up from 7.28% a week earlier. For a buyer financing a home, a move of that size can change the monthly payment meaningfully even if the sticker price of the home does not move. The Fed’s September minutes described residential mortgage financing as restrictive and noted that borrowing for home purchases remained depressed.
Consumer expectations are also moving in a direction the Fed cannot ignore. The New York Fed found median one-year inflation expectations rose to 3.9% in September, the highest since May 2023, while three-year expectations increased to 3.3%. The University of Michigan’s October preliminary survey was even more pessimistic in the near term, with year-ahead inflation expectations at 4.7%. Different surveys use different methods and therefore produce different levels; the common signal is that households do not believe the inflation problem has disappeared.
Imports are surging because demand — and investment — are still powerful
The growth engine has a cost
Another clue sits at the ports. The U.S. goods and services trade deficit widened to $105.6 billion in August, up 13.7% from July, as imports rose 4.3% to a record $420.8 billion. Exports increased 1.4% to $315.2 billion. A wider trade deficit subtracts from GDP arithmetic, but the import surge is also evidence of strong U.S. demand.
The composition is especially revealing. BEA reported that imports of industrial supplies and materials rose by $9.1 billion in August, including a $3.3 billion increase in crude oil. Capital-goods imports rose by $6.2 billion, with semiconductor imports up $2.4 billion. Those numbers fit the Federal Reserve’s description of an economy in which the artificial-intelligence buildout is supporting unusually strong business investment while also creating demand for imported high-tech equipment, electricity infrastructure and financing.
That investment is one reason the economy can keep growing even when consumers say conditions feel weak. The second-quarter GDP report showed contributions from consumer spending, investment and exports. The Fed minutes said capital investment was robust and the scale of AI-related investment had continued to surprise to the upside. But the same boom may create pressure elsewhere: heavy private borrowing can push up longer-term yields, while demand for energy, equipment and skilled labor can add to prices in sectors already constrained by supply.
Consumption remains the backbone
Consumers are still buying enough goods and services to keep aggregate demand firm, even though sentiment and real-income growth are weaker.
AI and capital spending add a second pillar
Data-center and technology investment is supporting equipment imports, construction, financing demand and corporate earnings.
Why sentiment matters even if GDP keeps growing
Confidence can become behavior
Consumer sentiment is not GDP, and a gloomy survey does not mechanically predict a recession. People can dislike the economy and still spend. They can complain about inflation while maintaining employment and making payments. That is precisely what the current data show.
But sentiment matters because expectations can become behavior at the margin. A household that thinks its finances are deteriorating may postpone a vehicle purchase, trade down at the grocery store, skip a vacation or avoid moving to a larger home. A small business facing higher credit costs may delay a hire. A homebuilder may shelve a project when mortgage rates reduce the pool of qualified buyers. None of those decisions has to be dramatic in isolation; repeated across millions of households and firms, they can change the trajectory of demand.
The October Michigan report highlights that distributional risk. Sentiment fell sharply among consumers with lower incomes and smaller stock portfolios — groups that have fewer assets to cushion price increases. The index of current economic conditions fell much more sharply than the index of expectations, suggesting that the immediate squeeze is particularly intense even though some households still hope for improvement ahead.
There is also a political temptation to reduce all of this to a single verdict on economic management. The data resist that simplification. Tariffs, energy disruptions, interest rates, housing supply, investment booms, asset prices and labor-market dynamics are all interacting. Some forces are lifting output while others are raising costs. Some households are benefiting from higher asset prices and investment-linked wages, while others confront the economy mainly through fuel pumps, rent renewals and loan payments.
September CPI
The Bureau of Labor Statistics will publish the next major consumer-inflation reading. It will be a key test of whether recent price pressure is broadening or stabilizing.
September PPI
Producer prices will offer another view of cost pressure moving through supply chains and business margins.
Federal Reserve meeting
Officials will decide whether September’s rate increase was enough for now or whether inflation risks justify another move.
Third-quarter GDP and September PCE
BEA is scheduled to release the first estimate of third-quarter growth alongside fresh income, spending and inflation data.
Quick answers
Is the U.S. economy in recession?
Current official data do not show an economy in recession. Real GDP grew in both the first and second quarters of 2026, consumer spending remains positive and unemployment is 4.2%. The risk is that weak hiring and high financing costs could make future growth more fragile.
Why is sentiment so weak if spending is strong?
Because sentiment measures how people feel about prices, finances and buying conditions, while spending measures what they actually purchase. Higher-income households can keep total spending elevated even when lower- and middle-income households are under more pressure.
What is the Federal Reserve watching now?
Inflation persistence, inflation expectations, labor-market stability and the strength of demand. September minutes show officials see inflation risks as tilted upward but still describe the labor market as broadly stable.
What is the most important near-term data point?
The September CPI on October 14 is the next major national inflation release, followed by producer prices on October 15 and the Fed meeting on October 27–28.
The bottom line: resilience is real, and so is the squeeze
No single statistic wins
The temptation in a polarized economic debate is to pick one number and declare victory: strong spending means consumers are fine; low sentiment means the economy is broken; low unemployment means the labor market is healthy; weak payroll growth means recession is imminent. None of those claims is adequate on its own.
The more accurate picture is a resilient economy with narrowing margins for error. Output is still growing. Consumers are still spending. Businesses are still investing heavily, especially in technology infrastructure. But job creation has slowed, borrowing costs have risen, real disposable income stalled in August, and households continue to expect uncomfortable inflation. The result is an economy whose aggregate numbers look sturdier than its emotional temperature.
That is why the coming data matter so much. If inflation cools without a jump in unemployment, the Fed will have more room to stop tightening and households may finally get relief through borrowing costs and real-income gains. If inflation stays stubborn while hiring remains weak, the central bank will face a harder tradeoff. The economy does not need a dramatic collapse to feel worse; a long period of expensive essentials, difficult financing and low job mobility can be enough.
For now, the split-screen remains: a nation that keeps spending and investing, and a public that increasingly says the cost of doing so is wearing it down.
Sources and data notes
University of Michigan Surveys of Consumers, preliminary October 2026 results, released October 9.
Federal Reserve Bank of New York Survey of Consumer Expectations, September 2026, released October 7.
U.S. Bureau of Labor Statistics, Employment Situation, September 2026, released October 2; and JOLTS, August 2026, released September 29.
U.S. Bureau of Economic Analysis, Personal Income and Outlays, August 2026; GDP, second quarter 2026 third estimate; and U.S. International Trade in Goods and Services, August 2026.
U.S. Census Bureau, Advance Monthly Sales for Retail and Food Services, August 2026.
Federal Reserve, minutes of the September 15–16, 2026 FOMC meeting, released October 7; FOMC calendar.
Freddie Mac Primary Mortgage Market Survey, week of October 8, 2026. BLS release calendar used for the October 14 CPI and October 15 PPI dates.
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