Moods Stay Cool Amid Warmer Summer Data

According to recent surveys, American consumers’ moods dimmed in August. Tariff-related concerns weighed on respondents’ outlooks, with many anticipating higher unemployment and accelerating inflation in the months ahead. But feelings don’t predict action—as the Bureau of Economic Analysis’ (BEA’s) latest “Personal Income and Outlays” report shows. How the latest PCE figures contrast with sentiment survey results illustrates the disconnect between the two—a bullish sign. Watch what consumers do, not what they say.

July’s real (i.e., inflation-adjusted) personal consumption expenditures (PCE) rose 0.3% m/m, improving on June’s 0.1% and meeting expectations.^[i] Services spending grew 0.1% m/m, matching June’s growth, while goods spending jumped 0.9% m/m thanks to new motor vehicles purchases (7.8%).^[ii] Analysts naturally attributed this to tariff front-running, with consumers snapping up big-ticket items before it gets too late.^[iii] For instance, automakers are largely waiting for new model year to embed tariffs in vehicle prices—a well-known factor customers are trying to beat. US shoppers may have also been taking advantage of promotions during some big online sales events.^[iv] Still, the results show consumers aren’t exactly tapped.

On the inflation front, July’s headline PCE Price index—the Fed’s preferred inflation measure—rose 2.6% y/y, also in line with consensus estimates.^[v] Services prices (3.6% y/y) sped up from June’s 3.5% rate while goods prices slowed to 0.5% from June’s 0.6%.^[vi]

Looking beyond July, consumer spending has been bumpy this year. Some tariff frontrunning occurred in March, followed by a pothole in April and May—and spending may now be returning to pre-Liberation Day growth. (Exhibit 1) In contrast, the PCE price index hasn’t deviated much from its longer-running trend. (Exhibit 2)

Exhibit 1: Real Personal Consumption Expenditures, August 2023 – July 2025

Source: FactSet, as of 8/29/2025

Exhibit 2: PCE Price Index, August 2023 – July 2025

Source: FactSet, as of 8/29/2025.

While the data indicate consumer spending improved in the summer and inflation stayed at prepandemic norms, people’s feelings about the economy remained dour. According to the University of Michigan’s (U-Mich’s) widely watched Surveys of Consumers, sentiment cooled across the board. The headline Index of Consumer Sentiment fell from July’s 61.7 to 58.2, as respondents’ assessment of present and future economic conditions weakened.^[vii] Annual inflation expectations—both over the next year and five years—also rose.^[viii] U-Mich’s survey isn’t an anomaly, as the Conference Board’s consumer confidence poll worsened slightly in August, slipping -1.3 points to 97.4.^[ix]

That said, August’s results aren’t outliers. U-Mich’s headline consumer sentiment index weakened through much of the year, with the sharpest dip occurring during April’s tariff uncertainty. It improved as tariffs paused, then fell again as they took effect. Time will tell if this reaction is temporary.

Interestingly, survey respondents’ views of the economy track party lines. Going back to last year, Republicans and Democrats’ outlooks flipped in November after President Donald Trump’s victory. Democrats’ opinion on the economy tanked, bottoming in the aftermath of Liberation Day. Their moods improved for a bit afterward, trending up alongside Republicans’ views until everyone got the blues in August, though Democratic sentiment remains much, much gloomier overall. (Exhibit 3)

Exhibit 3: U-Mich Sentiment Index, Headline and by Political Party

Source: University of Michigan, as of 8/29/2025. Headline Index and Index levels based on political party affiliation, July 2023 – August 2025.

To us, this shows how fickle and politicized sentiment can be—and why investors should refrain from overrating its influence over economic activity. What people tell survey takers has never been very indicative of future economic behavior; it is snapshot of how they felt when asked nebulous questions about the economy. And no single sentiment indicator or attempt to quantify feelings will be perfect. But the contrast here is telling and interesting.

More broadly for investors, these data reveal a big disconnect between sentiment and reality. Moods warmed in the earlier summer months, which squares with improving data, the tariff pause and stocks’ post-correction rebound—a reminder surveys are, at best, a coincident indicator. However, sentiment remains at deeply dour levels despite a growing economy and stocks at record highs. That consumers’ feelings are closer to 2022’s all-time lows than prepandemic levels indicates skepticism remains prevalent. (Exhibit 4)

Exhibit 4: U-Mich Sentiment Index, August 2015 – August 2025

Source: University of Michigan, as of 9/2/2025.

Tracking sentiment is more art than science, as human emotion flips fast—and is rarely uniform. And it is a mistake to treat sentiment as predictive of future behavior. Still, monitoring various measures of how people feel is worthwhile since stocks move most on the gap between expectations and reality. Economic fundamentals look solid, yet outlooks remain muted overall. We see warnings about pockets of excess, projections of future negative volatility and calls for needed support (e.g., Fed rate cuts)—all reflecting the many doubts about the bull market’s strength. That means even an ok reality can positively surprise.