This chart on consumer confidence has never looked like this in its entire history

The engine of the American economic machine isn’t exports, or imports, or even AI — it’s good old-fashioned consumption, with consumer spending responsible for nearly 70% of US GDP.

Currently, there are a fair few signs that the US economy is doing okay. Job growth is actually holding up; unemployment rates remain near historic lows; and, though aggregate prices haven’t come down, inflation easing to 2.4% in March is a far cry from the 2022 peak of 9.1%.
Disney is soaring this morning because Americans can’t resist spending billions at the company’s theme parks, and markets more broadly have bounced hard in recent weeks, with the SPDR S&P 500 Trust up ~13% since the lows of the tariff turbulence seen in early April.

So, with all their myriad consuming, exactly how is the average American consumer feeling? The answer reveals a growing split between hard and soft economic data.

Vibe check

One commonly evaluated measure of how Americans actually feel is a monthly poll from The Conference Board: the Consumer Confidence Index, which asks US consumers to assess their present situation, as well as their expectations for the future.

At the end of April, the Present Situation Index — based on consumers’ assessment of “current business and labor market conditions” — was pegged at 133 and change, well above the historical average (103) of the survey.

While the index was still down 0.9 points from the month prior, it seems that Americans’ general assessment is that the economy isn’t doing too bad at the moment, market turmoil and GDP shrinkage notwithstanding.

However, with the total impact of America’s new tariff and trade policy yet to fully take effect, and economists ringing alarm bells for a potential recession, it appears that even though consumers don’t think the vibes are shot right now, many are anticipating a storm brewing ahead.

Indeed, the Expectations Index — the part of the Consumer Confidence Index that’s based on consumers’ short-term outlook for “income, business, and labor market conditions” — fell to 54.4 in April, far below the historical average of 90 and marking the lowest level since 2011.

By contrast with the Present Situation Index, the Expectations Index was down 12.5 points from March. Overall, consumer confidence declined for a fifth consecutive month; but, looking at both of the measures that it comprises, the what ifs are carrying more weight on consumers’ minds than what actually is. In fact, the ratio of those two lines plotted above — that is, the Present Situation Index divided by the Expectations Index — has never been more elevated in its entire history.

The last time consumers felt their situation was about to change this sharply was all the way back in the dot-com era of 2001.

But why is Americans’ confidence in the now staying strong, just as their expectations for the future is plummeting?

Now, and then?

The Consumer Confidence report outlined that all three components that informed the expectation measure — business conditions, employment prospects, and future income — had sunk sharply in recent months. In particular, feelings about income prospects were clearly negative for the first time in five years, indicating that broader worries about the economy have now trickled down to Americans’ personal situations.

Responses revealed that tariffs are front of mind for consumers. While many raised concerns about the high cost of living, the prospect of prices rising even more due to tariffs was a primary worry among those surveyed.

Ironically, in trying to make sense of the economic landscape, American consumers are finding themselves following a rule that also defines much of their inessential consumption: enjoy now, dread tomorrow.

Hard vs. soft

In a new note released late last night, Goldman Sachs Chief Economist Jan Hatzius explored a similar theme, noting a major divergence between the hard (unemployment, inflation, etc.) and soft (like surveys and polls) US economic data. For what it’s worth, his assessment was this:

“...it is not unusual for hard data to lag significantly in event-driven downturns, and the surge in pre-buying probably lengthens that lag further. It is notable that the soft data — which have their own shortcomings but are less susceptible to pre-buying distortions — have already fallen more than in the typical event-driven recession, even when we take the slightly better-than-expected ISMs for April into account.”