U.S. consumers are spending again, but have yet to regain their confidence

The American consumer continues to spend, sustaining one of the primary engines of the economy; however, confidence indicators have yet to show a robust recovery. The divergence between the actual behavior of households and their perception of the economy has become one of the most significant signals for U.S. businesses.

The latest spending data confirms this resilience. The Bureau of Economic Analysis reported that personal consumption rose by 0.5% in September, while personal income grew by 0.2% and disposable personal income also increased by 0.2%. Once adjusted for inflation, however, real consumption remained virtually flat, rising by less than 0.1%.

This distinction is important for business owners and independent professionals. A significant portion of the nominal increase in spending reflects higher prices rather than a corresponding rise in the volume of goods and services purchased.

Confidence: A rebound that falls short

The most positive news came from The Conference Board. Its confidence index rose by 7.5 points in October, reaching 91.7—up from 84.2 in September. The “present situation” index climbed 8.6 points, while the expectations index advanced by 6.9 points.

This result is notable because it broke a three-month streak of declining expectations. Sentiment regarding business and labor market conditions also improved.

Nevertheless, these figures should be interpreted with caution. The Conference Board noted that the recovery was linked, among other factors, to a moderation in retail gasoline prices between September and October. Furthermore, the organization cautioned that confidence remains on a long-term downward trend.

Moreover, consumers are not automatically translating this increased optimism into major purchasing decisions. The Conference Board recorded a decline in plans to buy automobiles, homes, and durable goods during October. Spending intentions for services also moderated across several categories.

The signal is clear: a monthly improvement in confidence does not yet equate to a broad-based recovery in demand. The University of Michigan offers a more cautious assessment. Its final sentiment index stood at 48 points in October—virtually unchanged from the 48.1 recorded in September and 10.4% below the level seen a year earlier.

The internal breakdown is also significant. The index for current economic conditions fell 8.3% month-over-month to 46.7, while the expectations index rose 5.4% to 48.8. One-year inflation expectations climbed from 4.6% to 4.7%.

Consequently, as the year draws to a close, consumers hold a far less favorable view of their economic situation than the rebound reported by The Conference Board might suggest.

Purchasing power under pressure

Retail sales also show strength. The Census Bureau reported that retail and food service sales reached $745 billion in September—an increase of 0.8% from August and 6.3% compared to September of the previous year. For the July–September quarter, sales were 5.5% higher than in the same period a year earlier.

However, these figures are expressed in current dollars and do not account for the impact of price changes. The issue becomes clearer when looking at inflation data.

The Bureau of Labor Statistics reported that the Consumer Price Index rose 0.6% in September and 3.7% over the last twelve months. Gasoline prices climbed 9.1% during the month, accounting for more than half of the monthly increase in the overall index. Core inflation rose 2.6% year-over-year.

Pressure is also evident in the inflation metric preferred by the Federal Reserve. According to the Bureau of Economic Analysis (BEA), the PCE price index rose 3.6% year-over-year in September and 0.5% from August. The core PCE index increased 3.1% year-over-year. For the consumer, the problem is not just that prices continue to rise. It also matters that real incomes are not growing fast enough to recover lost purchasing power.

Labor market data support this concern. The Bureau of Labor Statistics’ (BLS) Employment Cost Index showed that total compensation for private-sector workers rose by 3.4% over the twelve months ending in September. Wages and salaries grew by 3.1%. However, when adjusted for inflation, private-sector wages declined by 0.6% year-over-year.

From the perspective of labor unions, the pressure on family budgets is also a central issue. In October, the AFL-CIO stated that rising prices—particularly for gasoline—had been outpacing wage growth for several consecutive months.

This warning aligns with an analysis by the Economic Policy Institute, an organization historically linked to the U.S. labor movement. The institute argues that affordability depends on the race between income and prices: when income grows more slowly than inflation, purchasing power deteriorates.

Credit: Another Constraint on Consumption

Credit trends add another layer of complexity. The Federal Reserve Bank of New York’s Survey of Consumer Expectations, conducted in September, showed that households’ expectations for nominal spending growth over the next twelve months rose to 5.5%—the highest level since May 2023. Expectations for household income growth also increased, reaching 3.1%, the highest level since February 2025.

At the same time, however, perceptions regarding access to credit have worsened. A growing share of households now reports that obtaining financing is more difficult than it was a year ago.

Debt levels account for some of this strain. The latest available report on household debt from the Federal Reserve Bank of New York placed the total balance at $18.77 trillion as of the end of the second quarter. Credit card debt reached $1.263 trillion, while auto loan debt hit $1.713 trillion.

Delinquency rates, however, require careful interpretation. The New York Fed itself noted that new credit card delinquencies have remained relatively stable, albeit at elevated levels. This suggests there is insufficient evidence to characterize the situation as a widespread household credit crisis.

For businesses, the takeaway is significant: while there is still capacity for spending, there is also an increased sensitivity to financing conditions.

Confidence is not improving uniformly

The sharpest contrast appears in the LSEG/Ipsos survey. Its sentiment index fell to 45.2 points in October—the lowest level since October 2011. The 5.3-point monthly decline was the second-largest since the series began, surpassed only by the drop in April 2020. Furthermore, the indicator fell below the low point recorded during the pandemic.

All four components of the index declined. The most significant drops occurred in the measures for current conditions and investment, both of which fell by more than seven points.

These results demonstrate that there is no single way to interpret the state of American households. Depending on the indicator used, October could be viewed as a month of recovering confidence, stability, or a sharp deterioration in sentiment.

Deloitte offers a fourth perspective. Its “ConsumerSignals” metric found that financial well-being continued to improve slightly, remaining above levels seen a year ago. However, intentions for discretionary spending have moderated, and expectations regarding food prices remain near four-year highs.

For a business leader, this multifaceted view is likely more useful than any single index.

Consumers continue to spend, but they are being more selective about where they put their money. Essential spending remains more resilient, while discretionary decisions and major purchases face greater hurdles.

What It Means for U.S. Businesses

The key takeaway for business owners and independent professionals is that domestic demand continues to provide support—but resilience should not be mistaken for limitless strength.

Consumers can sustain their spending as long as they have jobs, income, and access to credit. However, the combination of persistently high inflation, pressure on real wages, and tighter financing conditions narrows the scope for new purchases.

The impact varies by sector. Demand remains relatively resilient in areas such as restaurants, digital services, healthcare, and certain forms of entertainment. Conversely, sectors like automobiles, housing, electronics, and other high-value goods are more sensitive to interest rates and changes in purchasing power.

The nature of competition is also shifting. In an environment where consumer confidence is fragile, businesses have less leeway to pass cost increases directly on to customers without first considering how they might react.

Commercial strategy may increasingly rely on promotions, financing options, entry-level products, loyalty programs, and offerings that clearly demonstrate the value received for every dollar spent.

The most critical indicator to watch in the coming months will be whether real spending begins to slow down, or if it manages to hold steady as expectations improve.

For now, the data points to an economy where consumer spending continues to drive activity—though it is now accompanied by a much more cautious outlook regarding personal financial situations.