Pessimistic Consumers, Resilient Economy
Few aspects of today's U.S. economy appear more contradictory than the gap between public sentiment and official statistics.
Consumer confidence, as measured by the University of Michigan's Surveys of Consumers, remains historically subdued. Many households continue to struggle with elevated prices for food, housing and energy, leaving them pessimistic about their financial future.
Yet the macroeconomic picture looks considerably stronger. Inflation remains above the Federal Reserve's target, unemployment is relatively low, and consumer spending has continued to expand, led by robust demand for services. Why do consumers feel so gloomy while the economy appears remarkably resilient?
Two Different Definitions of "Average"
The answer lies partly in how these indicators are constructed.
Consumer confidence surveys give every respondent equal weight. A low-income household and a millionaire each count as one observation. If most households feel financially squeezed, the index declines regardless of how much they spend.
Consumer spending statistics work very differently. They measure dollars spent rather than opinions expressed. A relatively small number of affluent households can account for a disproportionate share of total expenditure on travel, restaurants, healthcare, luxury housing and leisure. In other words, spending data reflect a weighted average based on purchasing power, not a simple average across individuals.
The result is that widespread financial anxiety can coexist with healthy aggregate consumption.
Services Have Few Spending Limits
The distinction between goods and services further reinforces this divergence.
Even wealthy households cannot consume dramatically more food or household necessities than everyone else. But spending on services—travel, hotels, entertainment, education, financial advice or private healthcare—has virtually no upper limit. As wealth becomes more concentrated, service consumption can continue expanding even when many families tighten their budgets.
That helps explain why service-sector spending has remained strong enough to support employment despite weaker consumer sentiment.
Looking Beyond the Headline Numbers
This dynamic also creates a powerful feedback loop. Strong spending by affluent households supports corporate earnings and asset prices, further increasing the wealth of those who own financial assets. Rising wealth, in turn, encourages additional consumption.
The result is an economy that may appear healthy in aggregate while many households experience little improvement in their own living standards.
Economic analysis has traditionally assumed that the "average consumer" represents the broader population. As income and wealth become increasingly concentrated, that assumption becomes less reliable. The crucial question is no longer whether the economy is strong or weak, but whose spending is sustaining growth—and who is being left behind.