Consumer Confidence

The most important caveat is that confidence and consumption can part ways. The clearest example came in 2022-2023, when sentiment sat near record lows even as inflation-adjusted spending kept climbing — a divergence that earned the nickname vibecession. People told surveys the economy was terrible while continuing to buy. The lesson is that confidence is better at flagging turning points — sharp drops that warn of a coming pullback — than at predicting the level of spending in any given month. Treated as a mood ring rather than a spending forecast, it is genuinely useful; taken literally, it misleads.

Each index splits into how people feel now (the present-situation component) and how they expect things to look in six months (the expectations component), and the relationship between the two is more telling than either alone. Expectations is the forward-looking piece — on the Conference Board measure, an expectations reading below 80 has often preceded recessions. The revealing pattern is a widening gap: when people judge current conditions as fine but turn sharply gloomy about the future, that divergence has historically shown up before downturns, as confidence about today gives way to fear about tomorrow.

Confidence does not move all spending equally. Groceries, rent and utilities get paid regardless of mood, so a dip in sentiment barely touches them. What it does move is discretionary and big-ticket spending — cars, appliances, furniture, travel and home purchases — precisely the outlays people can postpone when they feel uneasy. That is why the Michigan survey asks directly whether now is a good time to buy a house, a car, or a major household item: those buying-conditions answers, more than the headline, are where a confidence shift first turns into deferred or accelerated purchases.

Confidence is partly downstream of a few highly visible things, which makes it as much a mirror as a forecast. Gas prices are the price consumers see most often, so they weigh on sentiment out of proportion to their budget share. Stock prices feed it through the wealth effect, especially for higher-income households. And politics moves it strikingly: survey respondents consistently rate the economy far better when their own party holds the White House, and that partisan gap has widened over the past decade. All of this means a swing in confidence sometimes reflects what people are seeing and who they are, not a genuine change in their willingness to spend.