Americans Are Spending Today—and Worrying About Tomorrow

Americans feel surprisingly good about today and increasingly worried about tomorrow. That divide may be one of the economy’s most important signals.

KEY TAKEAWAYS

• The headline Consumer Confidence Index barely moved, but the components diverged sharply. The Present Situation Index rose to 121.2 while the Expectations Index fell to 68.2.

• Expectations are now well below the Conference Board’s historically important 80 threshold. That has often preceded recessions, though the signal has produced false alarms in recent years.

• Inflation anxiety remains a major source of consumer concern. One-year household inflation expectations rose to 5.8%, while gasoline, food, tariffs, and geopolitical risks remain highly visible to consumers.

• Housing is showing a similar strain. New home sales weakened sharply, inventory climbed, and median prices fell despite builders using incentives to attract buyers.

• The consumer has not actually broken. Spending is more closely tied to perceptions of current conditions, and those remain comparatively healthy–the danger comes if expectations eventually change behavior.

MY HOT TAKES

• The divergence between “today” and “tomorrow” matters more than the headline confidence number. Consumers can remain economically active for quite a while even while becoming increasingly pessimistic about the future.

• The key transmission mechanism is behavioral change. Weak expectations become economically dangerous when households postpone purchases, increase precautionary savings, or employers begin pulling back on hiring.

• Housing may be providing an early glimpse of what that behavioral shift looks like. Buyers faced with high prices, financing costs, and uncertainty are already showing greater reluctance to commit.

• The below-80 Expectations Index deserves attention, not panic. Historical relationships matter, but recent false recession signals are a reminder that sentiment indicators are warnings rather than clocks.

• For now, consumer resilience remains the bullish counterweight. A consumption-driven economy does not unravel simply because households are nervous about six months from now; current conditions have to weaken too.

• You can quote me: “70% of GDP doesn't collapse on the strength of one soft survey question about six months from now.”

Feeling a little pinch. Picture your annual physical. Blood pressure's fine, doctor says. She drapes her stethoscope over her neck and glances at her computer. Cholesterol–not bad. Then she frowns at the bloodwork results and says "uh…we need to talk about six months from now." Would you just stand up, thank her, and walk out at that point? Of course, not. That's yesterday's Consumer Confidence report in a nutshell–and if you only read the headline, you missed the diagnosis entirely.

Here's the headline, for the record: the Conference Board's Consumer Confidence Index came in at 89.4 for August, down 0.8 points from a downwardly revised 90.2 in July, and the weakest print since January. On its own, that's a shrug. A rounding error. The kind of number that moves markets exactly zero basis points. But the headline index is really just an average of two very different patients, and this month, those two patients are telling completely different stories.

Patient One is the Present Situation Index–how Americans feel about right now, today, this paycheck. That one actually ROSE 6.8 points, to 121.2, its first improvement in four months. People think jobs are easier to find than they did last month. They think current business conditions are fine. If you stopped reading there, you'd think the American consumer just got a clean bill of health. Go to the front desk, pay your co-pay and maybe, snag a lollipop.

You cannot stop reading there. Patient Two is the Expectations Index–what people think happens over the next six months to their income, their job, and the broader economy, and it cratered 5.8 points to 68.2. Sit with that number for a second, because the Conference Board itself has said, repeatedly, that an Expectations Index reading below 80 has historically preceded a recession within the following year. We're not flirting with that line anymore. We're 12 points under it. That's not a caution light. That's the check-engine light AND the oil light AND the one that just says "see dealer immediately."

Think about the Millers, my favorite fictional stand-in for Midwestern America (their mortgage is real, their Costco run is real, only their last name is fake). Today, the Millers are fine. Dad's job still exists, the fridge is full, the Labor Day cookout is happening as planned (despite the ridiculous price of chopped meat 🤮). Ask them about right now, and they'll shrug and say "we're managing." Ask them about six months from now–after they've seen the gas pump, after they've heard "tariffs" mentioned on the evening news for the ninth night running, after their neighbor got a "restructuring" email, after they stocked up on Beef for the cookout–and the shrug turns into something closer to a wince. Same household. Same balance sheet. Two completely different emotional weather reports, twelve minutes apart. That's not a contradiction. That's just August 2026 in a nutshell.

So why is nobody panicking? Because, and this is the part that actually matters for your portfolio and your business plan, Americans have decided to be fine today and terrified about tomorrow, and it turns out that's a perfectly stable place to sit for a while. Consumers are, functionally, driving down the highway at seventy while reading a weather report that says a hurricane is forming three states over. They haven't taken their foot off the gas. They've just started glancing nervously at the sky.

Let's talk about why the sky looks bad, because the answer isn't mysterious. Households now expect inflation to run at 5.8% over the next year, up from 5.6% in July, which is nearly TRIPLE the Fed's 2% target, and worth sitting with for a moment, because when the public stops believing the Fed can hit its own number, that's not a data point, that's a credibility crisis with a delay timer on it. And they're not making that number up out of thin air. The AAA national average for a gallon of regular gas sat at $4.10 on August 25th–the kind of price that doesn't show up on a spreadsheet so much as it shows up on your face every time you pull up to the pump. Add in more frequent survey mentions of armed conflict, tariffs, and food costs, and you've got a household that's watching the news, doing the math, and drawing its own conclusions well ahead of any Fed speech in Wyoming.

And it's not confined to gas station receipts. The same morning this confidence data landed, we got a housing print that tells the identical story from a different angle. New home sales fell to a seasonally adjusted annual rate of 607,000 in July–down 10.5% from June, down 6.3% from a year ago, and missing consensus estimates by a wide margin. Months of supply jumped to 9.6, up from 8.5 in June, meaning builders now have almost ten months of inventory sitting on the shelf at the current sales pace. The median price of a new home fell to $393,800, down 2.3% from June and the lowest level in roughly five years. Builders are cutting prices, leaning on incentives, and shrinking the size of what they build, and buyers are STILL not showing up in the numbers builders wanted. That's not a coincidence sitting next to the confidence data. That's the same nervous consumer, showing up twice in one morning's headlines.

Now, here's where I have to play referee on my own thesis, because accuracy matters more to me than a convenient narrative–a single month's survey, however alarming, is not a crystal ball. The Present Situation Index rose. The jobs differential, the gap between people who say jobs are "plentiful" versus "hard to find," actually improved this month too, reversing three straight months of decline. Confidence surveys are noisy, backward-looking in parts, forward-looking in others, and prone to getting yanked around by whatever's dominating the news cycle during the two-week survey window (this one ran August 3rd through the 16th, smack in the middle of $4-plus gas and a fresh round of geopolitical headlines). Below-80 expectations readings have a strong historical association with recessions. Strong is not the same as guaranteed. I'm not telling the Millers to build a bunker in the backyard. I'm telling them to know what's actually in the number before they decide how worried to be.

And there's a longer-run wrinkle worth flagging honestly: this isn't the first time in the last few years that the Expectations Index has dipped below 80 without the recession actually showing up on schedule. The indicator has a real track record, but it isn't undefeated, and survey-based sentiment has a habit of front-running fears that markets, and the underlying economy, eventually shrug off. I'd rather tell you that plainly than dress up one soft print as gospel and have to walk it back in a month. The number is real. The word "historically" is doing real work in that sentence, and it deserves your skepticism as much as your attention.

So where does the worry actually connect to the action? Here's the mechanism, and it's worth understanding because it's the hinge the whole story swings on: Americans spend based mostly on how they feel RIGHT NOW, not on what they fear might happen in six months. That's precisely why the Present Situation Index (today) and actual consumer spending have historically moved together far more tightly than the Expectations Index (tomorrow) and spending do. Worry about the future doesn't show up in your checking account balance until it changes your behavior, and behavior changes lag sentiment, sometimes by months. The risk isn't that expectations are gloomy today. The risk is what happens if that gloom hangs around long enough to start reshaping decisions: fewer big-ticket purchases, more building of precautionary savings, employers reading the same tea leaves and getting stingier with hiring, which would show up first in exactly the kind of housing numbers we just got, and then, eventually, in the jobs data everyone actually watches. Worry becomes action the moment people stop trusting that today's "fine" will still be fine next quarter. That's the bridge to watch. It isn't built yet. But the materials are on site.

For now, though, my honest read is a positive one, and I mean that: American consumers are proving remarkably resilient, spending through headlines that would have sent a less battle-tested economy into a defensive stance months ago. 70% of GDP doesn't collapse on the strength of one soft survey question about six months from now. It collapses when Present Situation joins Expectations in the basement, and right now, only one of the two patients is actually sick.

Which brings me back to that bloodwork. The headline told you the patient is breathing fine. It took one extra step–one glance past the number everybody skims past–to see the number that actually deserved the appointment. That's the whole job around here: not to panic at every soft print, and not to wave away the ones that matter, but to keep checking the chart nobody else bothered to read. Get some rest, take your vitamins…maybe eat an apple a day.

YESTERDAY’S MARKETS

Yesterday, a light volume day saw the S&P 500 rose 0.32%,The Dow Jones Industrial Average gained 0.3% (160 points) to 53,577, its third straight winning session, and the Nasdaq Composite advanced 0.66%, led by a rally in semiconductor stocks. The 10-year Treasury yield fell more than 7 basis points to 4.625%.

NEXT UP

• Personal Income (July) is expected to come in unchanged at 0.2%.

• Personal Spending (July) may have slowed to 0.1% from 0.3%.

• PCE Price Index (July) probably eased slightly to 3.6% from 3.7%.

• Durable Goods Orders (July) may have grown by 0.5% for a second straight month.

• Annualized Quarterly GDP Growth (Q2) is expected to come in at 1.5%, in line with the prior estimate.

• Richmond Fed President Tom Barkin will speak today.

• Important earnings today: Bath and Body Works, Dycom, Kohl’s, J M Smucker, Abercrombie & Fitch, Williams Sonoma, ⭐ NVIDIA ⭐, Synopsis, Agilent, Veeva Systems, Salesforce, Crowdstrike, Okta, HP, and Nutanix.