Americans Feel Terrible. Why Are They Still Spending?
The short version
- Two big consumer surveys hit new lows this month. Michigan came in at 46.3, and LSEG/Ipsos fell to 45.2, its weakest reading since 2011.
- Spending hasn't followed. Retail sales were up 6.3% from a year earlier in September, though much of that is just higher prices.
- Bad moods turn into spending cuts when they turn into job fears. Until then, the grocery bill shapes how people feel, not the other way around.
Three headlines, one story
Every Friday I run through the week's economic headlines on Instagram. This week, all three were telling the same story from different angles. People feel bad about the economy, investors are getting jumpy, and voters are handing out low grades. Underneath all of it is the cost of living.
But the most interesting thing this week wasn't in any of the headlines. It's the gap between how people say they feel and what they're doing with their money.
How bad does the mood look?
Bad. The University of Michigan's preliminary October reading fell to 46.3, down from 48.1 in September and the lowest since May's record low of 44.8. The part of the survey that asks how people rate conditions right now fell to 44.7, an all-time low. That matters. People aren't just nervous about next year. They're feeling it in this month's budget.
A second survey backs it up. The LSEG/Ipsos index came in at 45.2, its lowest since October 2011. It fell 5.3 points in a single month, the second-biggest drop on record. The only bigger one was April 2020, when much of the country was under stay-at-home orders. And Michigan's index never got this low in 2020 at all. It bottomed out around 72 that spring. People feel worse today than they did then.
Why are investors nervous too?
AI companies have borrowed enormous sums to build data centers, and investors are starting to ask whether AI revenue will show up fast enough to pay that debt back. Last week the pressure landed on CoreWeave, a data center company carrying roughly $52 billion in debt and lease obligations. On October 13, the yield on one of its bonds touched 15%. The next day its stock fell 15.5%.
That bond yield is the number to watch. When lenders demand 15% to hold your debt, every new data center gets more expensive to build, and the whole buildout can slow down. Notice how fast it happened, too. Investor mood showed up in prices within a day. Households don't work that way, and that's the puzzle of the week.
Who gets the blame?
A CNBC poll of 1,000 registered voters, taken October 14 to 18, put President Trump's approval on the economy at 34%. That's an all-time low in CNBC's polling and down four points since July, while his overall approval held steady at 40%. Sixty-five percent disapprove of how he's handling the economy, up five points since July.
The pessimism is reaching his own voters, too. Sixty-three percent of respondents feel negative about the economy right now, including 35% of Republicans. That's the highest share of Republicans with a negative view during either of his terms. When the cost of living hurts, voters blame whoever is in charge. President Biden's economic approval fell to 28% in AP-NORC polling in 2022, so this has held for presidents of both parties.
So do people spend less when they feel worse?
Not as much as you'd think. Census data show retail sales of $745 billion in September, up 6.3% from a year earlier. Over July through September, sales ran 5.5% above the same months last year. In a Morning Consult survey, 38% of adults said they plan to spend less on the holidays this year. The NRF still expects holiday spending to grow 4.2% over 2025.
In plain words: what people say and what people do are two different data sets. Economists call this the difference between stated and revealed preferences.
A survey records how you feel. A receipt records what you chose.
The textbook reason is that spending mostly follows income and wealth, not mood. If you still have a paycheck, you still buy groceries, gas, and rent, and those are the things that feel most expensive right now. You can't skip them, so you pay more and feel worse at the same time. Research finds sentiment surveys add only a modest amount of information about future spending beyond what income and wealth already tell you (Carroll, Fuhrer, & Wilcox, 1994; Ludvigson, 2004).
One honest caveat. Retail sales are measured in dollars, not in stuff. When prices rise, the same cart of groceries shows up as "more spending." The Conference Board estimates that retail sales rose 0.8% in September in dollars but only 0.1% after adjusting for prices, with pricier gas doing a lot of the work. So a good chunk of that 6.3% is people paying more for the same things, which is exactly what they're complaining about.
When does the mood finally hit the wallet?
When bad feelings turn into job fears. If you think your hours might get cut, you stop buying the new phone and start padding your savings. That's precautionary saving, and it's when sentiment starts to predict real cuts. Goldman Sachs expects real consumer spending growth to slow to 1% to 1.5% in the second half of the year, as the boost from bigger tax refunds fades and high energy prices keep eating into paychecks.
I've been saying this for months. The cost of living is the story. Surveys, markets, and polls all follow the grocery bill. Until families feel their paycheck stretching further, the mood won't turn around.
What it means for you
If you're a student working 20 hours a week at $15 an hour, you earn about $15,600 a year. Consumers in the Michigan survey expect prices to rise 4.7% over the next year. If your pay stays flat and they're right, you lose about $730 in buying power, roughly $60 a month.
You'll probably keep spending anyway, because rent and groceries aren't optional. So the move is to look for a raise or more hours before that $60 shows up, not after.
For the classroom and your conversations
- If 38% of adults say they'll spend less this holiday season, what would you need to see in the data to believe them?
- Retail sales are reported in dollars. How would you separate "people bought more" from "things cost more"?
- Investors moved CoreWeave's bond yields in days. Why do households react to bad news so much more slowly?
- Does it matter whether voters blame the president for prices he may not fully control? What does that do to policy choices before an election?
Read and listen more
- University of Michigan Surveys of Consumers
- October 2026 LSEG/Ipsos Primary Consumer Sentiment Index
- Census Bureau advance estimates of retail and food services sales
- Retail sales signal healthy Q3 consumer spending (The Conference Board)
- Chip stocks bounce back after the steepest weekly selloff in months (Reuters)
- Trump's economic approval hits a low as Republican pessimism reaches an all-time high (Forbes)
- Watch this week's Economics This Week Reel on Instagram (@DecodeEcon)
References
Carroll, C. D., Fuhrer, J. C., & Wilcox, D. W. (1994). Does consumer sentiment forecast household spending? If so, why? American Economic Review, 84(5), 1397–1408. https://www.econ2.jhu.edu/people/ccarroll/sentaercarrollfuhrerwilcox.pdf
Ludvigson, S. C. (2004). Consumer confidence and consumer spending. Journal of Economic Perspectives, 18(2), 29–50. https://doi.org/10.1257/0895330041371222
Consumer sentiment is near record lows. Do you actually spend less when you feel worse about the economy, or just feel worse while you spend?