UMich's Hsu Warns Job Insecurity Threatens US Consumer Spending

University of Michigan

Unlike 2022 when strong hiring sustained retail outlays through peak inflation, mounting fear of job losses and rising loan delinquencies now threaten to derail aggregate US spending.

AI-assisted summary of Why cooling inflation isn't saving your bank account — original source. Check the original for full context.

Source published: 2026-09-10

Key ideas

Consumer sentiment index readings hover in the 50s, matching the lows of June 2022, but the underlying concern has shifted from peak inflation to acute labor market anxiety and perceived job vulnerability. (10:14)
The share of consumers anticipating higher national unemployment doubled between January 2025 and January 2026, coinciding with increased concern over personal household job security. (10:14)
Although inflation has slowed since 2022, price levels remain pinned at historic peaks, driving consumers to defend household budgets by trading down to discount retailers like Walmart. (5:58)
Aggregate consumer spending continues to prop up 70% of U.S. GDP primarily through top-income households benefiting from equity market gains, masking rising loan delinquencies and distress among lower-income earners. (1:25)

Detailed notes

## Background Published by the University of Michigan on YouTube on September 10, 2026, this episode of the Michigan Minds podcast features Joanne Hsu, director of the University of Michigan Surveys of Consumers. According to the page description, Hsu discusses persistent high prices, how the labor market influences consumer budgeting, and why cooling inflation has not eliminated widespread frustration among American households.

## TL;DR In this discussion, Joanne Hsu explains the critical economic difference between decelerating inflation and falling prices, noting that living costs remain parked at historically elevated levels. While top-line consumer spending has appeared resilient on paper, aggregate figures are heavily skewed by high-wealth households benefiting from stock market gains, masking deep distress among lower-income earners who are forced to aggressively trade down. Unlike the high-inflation period of 2022, consumer anxiety in 2026 is increasingly driven by a softening labor market, mounting job insecurity, and climbing debt delinquencies. Consequently, deteriorating job confidence threatens to push consumers from cautious brand-switching into broader spending retrenchment that could impact national GDP.

## Atmosphere & style The conversation carries an analytical yet grounded, empathetic tone, functioning as a bridge between high-level macroeconomic modeling and the tangible stress of everyday kitchen-table budgeting. Host Juan Ochoa approaches the topic from the perspective of an anxious consumer sharing relatable personal anecdotes, while Joanne Hsu responds with measured, academic precision that validates the public's widespread economic frustration. The dialogue progresses from dissecting price stickiness to uncovering subtle fractures in the labor market, leaving listeners with a sobering sense that current macroeconomic stability rests on an increasingly fragile foundation.

## Bulletin - [10:14](https://www.youtube.com/watch?v=dhEed-47frw&t=614s) Consumer sentiment index readings hover in the 50s, matching the lows of June 2022, but the underlying concern has shifted from peak inflation to acute labor market anxiety and perceived job vulnerability. - [10:14](https://www.youtube.com/watch?v=dhEed-47frw&t=614s) The share of consumers anticipating higher national unemployment doubled between January 2025 and January 2026, coinciding with increased concern over personal household job security. - [05:58](https://www.youtube.com/watch?v=dhEed-47frw&t=358s) Although inflation has slowed since 2022, price levels remain pinned at historic peaks, driving consumers to defend household budgets by trading down to discount retailers like Walmart. - [01:25](https://www.youtube.com/watch?v=dhEed-47frw&t=85s) Aggregate consumer spending continues to prop up 70% of U.S. GDP primarily through top-income households benefiting from equity market gains, masking rising loan delinquencies and distress among lower-income earners.

## Key takeaways - [00:00](https://www.youtube.com/watch?v=dhEed-47frw&t=0s) Consumer expectations serve as a critical leading macroeconomic indicator because consumer spending generates roughly 70% of U.S. gross domestic product. - [01:25](https://www.youtube.com/watch?v=dhEed-47frw&t=85s) The historical link between sentiment and spending diverged post-2021 as resilient wage growth and top earners kept aggregate expenditures high despite widespread negative sentiment. - [01:25](https://www.youtube.com/watch?v=dhEed-47frw&t=85s) Wealth inequality has produced a K-shaped recovery in sentiment, where equity market highs rebounded confidence for wealthy households while leaving households without market assets depressed. - [04:26](https://www.youtube.com/watch?v=dhEed-47frw&t=266s) Nearly 40% of consumers surveyed in early 2026 cited tariffs as a primary economic concern, viewing them as an enduring regime of elevated baseline costs rather than temporary disruptions. - [05:58](https://www.youtube.com/watch?v=dhEed-47frw&t=358s) Cooling inflation merely reflects a slower pace of price increases, leaving consumers frustrated because absolute price levels remain near record highs. - [05:58](https://www.youtube.com/watch?v=dhEed-47frw&t=358s) Broad-based deflation historically does not occur without severe economic trauma, such as a major recession with significant unemployment. - [07:00](https://www.youtube.com/watch?v=dhEed-47frw&t=420s) Households are adapting to tight budgets by trading down toward budget-friendly alternatives and value retailers rather than halting spending entirely. - [09:17](https://www.youtube.com/watch?v=dhEed-47frw&t=557s) Persistent price escalation in non-negotiable living costs like housing and insurance forces households to cut back disproportionately on discretionary purchases. - [10:14](https://www.youtube.com/watch?v=dhEed-47frw&t=614s) In 2022, plunging sentiment was cushioned by a tight labor market and easy job switching; by 2026, sentiment is depressed by frozen hiring and fears of unemployment. - [12:15](https://www.youtube.com/watch?v=dhEed-47frw&t=735s) Macroeconomic early-warning indicators, including climbing consumer loan delinquency rates and depressed job openings, indicate growing structural stress on household finances. - [15:00](https://www.youtube.com/watch?v=dhEed-47frw&t=900s) Despite one-year inflation expectations receding to 3.5% in February, long-term expectations remain elevated relative to 2024 and pre-pandemic norms.

## Detailed walkthrough ### [00:00](https://www.youtube.com/watch?v=dhEed-47frw&t=0s) Consumer Sentiment as an Economic Leading Indicator

Host Juan Ochoa opens the episode by introducing Joanne Hsu, director of the University of Michigan Surveys of Consumers and research associate professor at the Institute for Social Research. Ochoa gets straight to the point, asking as a concerned consumer how sentiment actually maps onto concrete indicators like economic growth, employment, and overall spending. Hsu explains that the University of Michigan has tracked consumer attitudes and sentiment continuously since 1946, building decades of longitudinal data.

Historically, consumer expectations function as a reliable leading indicator for broader macroeconomic health. When sentiment plunges, households naturally seek to protect their finances by cutting back on expenditures. Because consumer spending accounts for roughly 70% of gross domestic product (GDP) in the United States, collective belt-tightening by everyday consumers has the power to slow down the entire national economy.

```mermaid flowchart TD accTitle: Sentiment and Economic Activity Feedback Loop accDescr: Diagram showing how consumer sentiment drives aggregate spending and influences GDP.

A["Consumer Sentiment Plunges"] --> B["Households Cut Back on Discretionary Spending"] B --> C["Aggregate Consumer Spending Slows"] C --> D["Overall GDP Slowdown (70% driven by consumption)"] ```

[01:25](https://www.youtube.com/watch?v=dhEed-47frw&t=85s) The Post-Pandemic Divergence and the K-Shaped Consumer

Ochoa admits that he is personally trying to conserve money, asking whether there are historical periods where consumer confidence diverged sharply from underlying economic realities. Hsu points out that the typical relationship between sentiment and spending fundamentally distorted starting around 2021. As post-pandemic inflation spiked, public perceptions of the economy took a nose dive, yet total aggregate consumer spending remained remarkably robust.

This anomaly occurred alongside the breakdown of several other classic recession warning signs, including the inverted yield curve and the Sahm rule. Hsu outlines two main explanations for why traditional rules failed:

* **Strong labor markets:** In the immediate post-pandemic aftermath, exceptionally tight labor markets drove solid wage growth. Even though households despised spending in a rapid-inflation environment, their paychecks still enabled them to maintain spending levels. * **The wealth and income divide:** While sentiment hit rock bottom across the country in 2022, confidence among the highest-income and highest-wealth households rebounded rapidly as soon as inflation began to cool. In contrast, confidence among lower-income Americans remained completely stagnant. Because top earners generate the overwhelming bulk of aggregate consumer spending, their sustained outlays masked the severe distress experienced at the lower end of the income distribution.

Hsu notes that sentiment briefly converged between high-wealth and low-wealth households in mid-2025 when tariff announcements hit their peak, creating universal anxiety. However, once major equity indexes like the Dow Jones Industrial Average reached new record highs, high-wealth households with sizable stock portfolios saw their sentiment rebound. Meanwhile, households without equity investments gained nothing from stock market records, keeping their sentiment deeply depressed.

[04:26](https://www.youtube.com/watch?v=dhEed-47frw&t=266s) Durable Goods Sentiment and the Tariff Regime

Ochoa points to the January Survey of Consumers findings, noting an apparent paradox: conditions for purchasing durable goods registered a modest improvement, yet nearly 40% of surveyed consumers cited tariffs as a primary economic concern. Hsu explains that tariffs have dominated consumer minds ever since the election finalized, driven by fears that import duties will pass directly through to household retail prices and inject debilitating uncertainty into long-term planning for businesses and households alike.

While durable goods sentiment ticked up slightly in January, Hsu clarifies that it merely moved off the absolute bottom and remains at historically depressed levels. The reality is that consumers now view higher prices as inevitable. Even though some tariffs threatened the previous year were subsequently rolled back, the public recognizes that the country has entered an enduring "new tariff regime" with elevated baseline costs that show no sign of disappearing.

[05:58](https://www.youtube.com/watch?v=dhEed-47frw&t=358s) The Difference Between Cooling Inflation and Falling Prices

When Ochoa asks how consumers can find calm, Hsu emphasizes the core psychological friction in the current economy: the critical distinction between the *rate of inflation* and the actual *price level*. While inflation has slowed dramatically since 2022, that moderation simply means prices are rising at a much slower speed—it does not mean prices have returned to prior baselines. Prices remain parked at peak levels, which continues to deeply frustrate consumers who feel their standard of living is constantly being eroded.

Hsu notes the disconnect between everyday Americans and macroeconomic watchers or policymakers. Consumers intuitively want outright deflation (prices to drop back down), but economic history shows that widespread absolute price drops almost never happen without a catastrophic collapse, such as a severe recession that brings widespread unemployment and widespread economic pain.

[07:00](https://www.youtube.com/watch?v=dhEed-47frw&t=420s) Budget Adaptations: Trading Down and Choosy Spending

Addressing the frightening prospect of a recession, Ochoa asks how households are actively managing their budgets to cope with persistent costs. Hsu notes that although headline GDP growth has remained resilient and aggregate dollar spending has not dropped off significantly, a massive shift has taken place beneath the surface in *how* Americans allocate their money.

Rather than cutting aggregate dollar outlays entirely, consumers are actively "trading down." Corporate earnings reports reveal that shoppers are systematically substituting away from premium or higher-cost goods and opting for lower-cost alternatives. Hsu highlights that value-focused retailers like Walmart are thriving in this climate, whereas retailers positioned higher up the price ladder are struggling. This behavior shows consumers proactively defending their budgets by becoming remarkably cautious and choosy with every dollar spent.

[09:17](https://www.youtube.com/watch?v=dhEed-47frw&t=557s) Budget Pressures and Wealth Inequality in Consumer Spending

Joanne Hsu breaks down how non-negotiable living expenses—specifically housing, insurance, and higher education—place immense pressure on household balance sheets. While individuals might have options when it comes to college, expenses like shelter and basic insurance policies are unavoidable. When these critical categories surge in price, consumers are forced to scale back spending elsewhere across discretionary goods and services.

Despite historically weak consumer confidence numbers, aggregate retail spending has managed to stay surprisingly resilient. Hsu explains that this macroeconomic stability is largely propped up by households at the top tier of the income and wealth distribution. Wealthier consumers with stable employment and large asset cushions have not faced layoffs and still possess ample budgetary wiggle room. Because these top earners have not significantly altered their day-to-day spending patterns, their high dollar volumes conceal the financial distress felt across the rest of the country.

---

[10:14](https://www.youtube.com/watch?v=dhEed-47frw&t=614s) The Hidden Shift: 2022's Inflation Peak vs. 2026's Labor Market Anxiety

When asked what surprising trends emerge beneath the surface data, Hsu points out that looking solely at top-line figures misses the underlying story. Current sentiment index readings hover in the 50s—levels comparable to the historic low seen in June 2022 when inflation was peaking. However, the economic reality felt by ordinary people in 2026 is fundamentally different from what occurred four years prior.

```mermaid flowchart TD accTitle: Labor Market and Consumer Sentiment Comparison accDescr: Contrasting economic perceptions between 2022 and 2026 based on inflation, labor conditions, and job security expectations.

subgraph Y2022["2022 Dynamics"] direction TB A["Peak Inflation Concern"] --> B["Ultra-Strong Labor Market<br/>('Great Resignation')"] B --> C["Confidence in Finding Work & Steady Pay"] end

subgraph Y2026["2026 Dynamics"] direction TB D["Lower Headline Inflation"] --> E["Severe Labor Market Deterioration"] E --> F["Disfavoring Job Security & Fearing Job Losses"] end ```

In 2022, consumer sentiment plummeted due to runaway price increases, yet the labor market remained historically tight during the "great resignation," meaning nearly anyone seeking employment could easily land an open role. In contrast, by 2025 and early 2026, labor sentiment has sharply deteriorated. The percentage of consumers anticipating an increase in national unemployment doubled between January 2025 and 2026. Furthermore, this anxiety is no longer an abstract fear about other people: - Survey responses to the probability of the respondent or their spouse losing a job within the next 5 years climbed substantially through 2025 and early 2026. - The podcast host shares an anecdote confirming this reality, noting a family member recently submitted over 200 job applications without receiving a single interview callback.

---

[12:15](https://www.youtube.com/watch?v=dhEed-47frw&t=735s) Labor Softening, Rising Delinquencies, and the Threat to Aggregate Spending

Although headline unemployment has remained relatively low, Hsu warns that consumers' darkening expectations about the future labor market are beginning to dictate their behavior. Back in 2022, consumers hated high prices but possessed the strong wage growth and employment stability required to keep spending. In 2026, growing job insecurity changes that calculus: if households anticipate reduced or lost income over the next year, they will pull back beyond simply "trading down" to cheaper brands.

Hsu highlights that early warning signs of stress are already appearing across broader macroeconomic datasets: - Delinquency rates on consumer loans have risen steadily and continue an upward trajectory. - Layoff announcements frequently dominate the news cycle while hiring has cooled. - Job openings are exceptionally depressed, creating a stark divide: currently employed workers might feel safe for now, but entering the job market poses extreme difficulty.

While high-net-worth households holding substantial stock portfolios have kept aggregate consumption numbers afloat, recent stock market volatility demonstrates that relying on asset-driven consumer spending remains a fragile strategy.

---

[15:00](https://www.youtube.com/watch?v=dhEed-47frw&t=900s) Inflation Expectations and Closing Takeaways

Discussing short- and long-term price perceptions, the host notes that one-year inflation expectations dropped to 3.5% in February, even as longer-term expectations edged upward. Hsu confirms that while consumers recognize inflation has decelerated significantly from the peaks driven by tariff rhetoric the previous year, they do not believe the storm has passed. Both the one-year and 5-to-10-year inflation expectations remain elevated compared to 2024 and pre-pandemic levels, signaling that consumers view price relief as fragile rather than a permanent return to baseline.

Concluding the interview, Hsu emphasizes that consumer sentiment surveys directly bridge the gap between everyday Americans and leadership: - "Your views matter. Your views matter for the economy and we're here to collect it." - Policymakers, central bankers, and corporate executives closely monitor the University of Michigan surveys to understand real-world conditions. - Hsu strongly urges anyone who receives an invitation to participate in the survey so that public sentiment continues to inform national policy decisions.

## Notable quotes > [05:58](https://www.youtube.com/watch?v=dhEed-47frw&t=358s) How do you see consumers responding to these additional budget constraints? — Juan Ochoa

> [05:58](https://www.youtube.com/watch?v=dhEed-47frw&t=358s) The number one factor on consumers' minds is the persistence of high prices and tariffs are a major factor in that. — Joanne Hsu

> [05:58](https://www.youtube.com/watch?v=dhEed-47frw&t=358s) Inflation, however, has come down, so Inflation being the rate of change of prices as opposed to just the price level itself, so inflation has slowed down quite a bit since 2022. — Joanne Hsu

> [05:58](https://www.youtube.com/watch?v=dhEed-47frw&t=358s) But that doesn't mean prices have come down; prices have remained high and that's something that consumers continue to be very frustrated about. — Joanne Hsu

> [05:58](https://www.youtube.com/watch?v=dhEed-47frw&t=358s) The thing is, we all want prices to come down, but historically speaking, it's really hard for prices to come down without something catastrophic happening in the economy, like a major recession. — Joanne Hsu

> [05:58](https://www.youtube.com/watch?v=dhEed-47frw&t=358s) And a major recession will surely affect everyone in a very negative way. — Joanne Hsu

> [05:58](https://www.youtube.com/watch?v=dhEed-47frw&t=358s) I think sometimes it can be hard for people who watch the macroeconomy, including policymakers, to square the fact that inflation has come down, but people are still so unhappy about how prices are eroding away at their living standards. — Joanne Hsu

> [04:26](https://www.youtube.com/watch?v=dhEed-47frw&t=266s) new tariff regime — Joanne Hsu

> [07:00](https://www.youtube.com/watch?v=dhEed-47frw&t=420s) trading down — Joanne Hsu

> [15:00](https://www.youtube.com/watch?v=dhEed-47frw&t=900s) Your views matter. Your views matter for the economy and we're here to collect it. — Joanne Hsu

## Mentioned Joanne Hsu, Juan Ochoa, Greta Guest, Jeremy Marble, Hans Anderson, University of Michigan, University of Michigan Surveys of Consumers, Institute for Social Research, Michigan Minds, Walmart, Dow Jones Industrial Average, Sahm rule

## Video description Joanne Hsu, director of the University of Michigan Surveys of Consumers and research associate professor at the Institute for Social Research, specializes in the fields of household finance, consumer sentiment and the impact of economic expectations on the national economy.

Hsu joins the Michigan Minds podcast to discuss her findings on current consumer sentiment, offering insight into persistent high prices and how the labor market is shaping the way Americans manage their budgets today.

How do you see consumers responding to these additional budget constraints?

The number one factor on consumers' minds is the persistence of high prices and tariffs are a major factor in that. Inflation, however, has come down, so Inflation being the rate of change of prices as opposed to just the price level itself, so inflation has slowed down quite a bit since 2022.

But that doesn't mean prices have come down; prices have remained high and that's something that consumers continue to be very frustrated about. The thing is, we all want prices to come down, but historically speaking, it's really hard for prices to come down without something catastrophic happening in the economy, like a major recession. And a major recession will surely affect everyone in a very negative way.

I think sometimes it can be hard for people who watch the macroeconomy, including policymakers, to square the fact that inflation has come down, but people are still so unhappy about how prices are eroding away at their living standards.

Michigan Minds is produced by Greta Guest and hosted by Juan Ochoa. Jeremy Marble is the audio engineer and Hans Anderson provides social media animations. Listen to all episodes of the podcast.

[Source](https://www.youtube.com/watch?v=dhEed-47frw)

中文简报

密歇根大学徐指出就业担忧威胁美国消费支出不同于2022年强劲的招聘在高通胀时期支撑了零售支出，如今对失业的担忧加剧以及贷款违约率上升正威胁着美国总体消费支出的稳定。在本次讨论中，Joanne Hsu解释了通胀放缓与物价下跌之间关键的经济差异，并指出生活成本依然处于历史高位。尽管表面上整体消费支出看似具有韧性，但总体数据在很大程度上被受益于股市上涨的高财富家庭拉高，掩盖了被迫大幅降级消费的低收入群体所面临的深度困境。与2022年的高通胀时期不同，2026年消费者的焦虑日益受到劳动力市场走弱、就业不稳定感上升以及债务违约率攀升的推动。因此，就业信心的恶化可能导致消费者从谨慎的品牌降级转向更广泛的支出削减，进而可能波及全国GDP。消费者信心指数徘徊在50多点，与2022年6月的低点持平，但背后的担忧已从通胀高峰转向剧烈的劳动力市场焦虑和对个人就业脆弱性的担忧。 (10:14) 预计全美失业率将上升的消费者比例在2025年1月至2026年1月期间翻了一番，与此同时，人们对自身家庭工作稳定性的担忧也有所增加。 (10:14) 尽管通胀自2022年以来已有所放缓，但物价水平仍维持在历史高位，迫使消费者通过转向沃尔玛等折扣零售商进行降级消费来维护家庭预算。 (5:58) 总体消费支出主要依靠受益于股市上涨的高收入家庭来支撑占美国GDP 70%的份额，这掩盖了低收入群体日益上升的贷款违约率和困境。 (1:25)

Reading summary

Joanne Hsu of the University of Michigan Surveys of Consumers argues that cooling inflation has failed to relieve household financial strain because absolute price levels remain near record highs while mounting labor market insecurity threatens spending stability. Although aggregate consumption has stayed resilient due to high-wealth households, widespread consumer sentiment remains historically depressed. Persistent Price Levels and Household Budget Adaptations (5:58) Hsu emphasizes a fundamental disconnect between cooling inflation and falling prices: while the pace of price increases has slowed dramatically since 2022, absolute price levels remain parked at peak levels rather than returning to pre-pandemic baselines. Outright deflation rarely occurs without severe economic crises such as recessions that trigger widespread unemployment. Meanwhile, non-negotiable living costs—particularly housing and basic insurance—continue to strain balance sheets, leaving households with diminished discretionary income. To manage persistent expenses, consumers are adjusting how they allocate funds rather than halting spending entirely. According to corporate earnings data, shoppers are actively trading down by systematically substituting premium goods with cheaper alternatives. This behavior has benefited discount retailers like Walmart while higher-end merchants struggle, illustrating how consumers defensively navigate elevated baseline living costs. Wealth Disparities Distorting Aggregate Spending Signals (1:25) While consumer confidence has plunged to historical lows, aggregate consumption—which accounts for roughly 70% of U.S. GDP—has remained unexpectedly robust. Hsu attributes this divergence to a sharp divide along income and asset lines. Higher-income and wealthier households experienced a rapid rebound in confidence once inflation moderated, further supported when major equity indexes like the Dow Jones Industrial Average reached new highs. Because top earners account for the overwhelming majority of total spending volume, their uninterrupted outlays conceal widespread financial distress among lower-income Americans who hold no equity investments. However, early macroeconomic warning signs indicate rising strain underneath this aggregate resilience, evidenced by a steady upward trajectory in consumer loan delinquency rates. Shifting Consumer Anxiety from Inflation to Employment (10:14) Although sentiment index readings in early 2026 hover in the 50s—comparable to the historic troughs of June 2022—Hsu points out that the underlying economic driver has fundamentally transformed. In 2022, negative sentiment was driven by peak inflation, but workers enjoyed strong wage growth and high job mobility during the 'great resignation.' By early 2026, anxiety has shifted heavily toward the labor market, where job openings are depressed and hiring has cooled. Survey data reveals that the proportion of consumers expecting national unemployment to rise doubled between January 2025 and January 2026. Perceived odds of personal or spousal job loss over the next five years have also risen noticeably. Hsu warns that while workers in 2022 continued spending due to secure paychecks, rising fears of income loss could soon force households to cut consumption beyond just trading down. Tariff Pressures and Elevated Inflation Expectations (4:26) Nearly 40% of surveyed consumers cited tariffs as a major economic headwind following the election, viewing trade duties as direct upward pressure on retail prices and long-term planning. Although sentiment regarding durable goods purchases ticked up slightly in January, Hsu notes it merely lifted off historical lows. Consumers widely perceive that the economy has settled into an enduring tariff regime characterized by permanently elevated baseline costs. This perspective keeps future expectations uneasy. Even though one-year inflation expectations moderated to 3.5% in February, longer-term five-to-ten-year inflation expectations edged upward. Hsu notes that both short- and long-run expectations remain elevated compared to pre-pandemic and 2024 levels, reflecting public conviction that recent disinflation is fragile rather than a permanent return to past stability. Hsu emphasizes that consumer sentiment surveys remain an essential leading indicator monitored by policymakers and corporate executives to detect real-world economic strain before it registers in headline growth figures. The unresolved vulnerability is whether consumption driven by high-wealth asset holders can continue to offset softening labor conditions and high non-negotiable living costs.

Source quotes

[5:58] Juan Ochoa: How do you see consumers responding to these additional budget constraints? [5:58] Joanne Hsu: The number one factor on consumers' minds is the persistence of high prices and tariffs are a major factor in that. [5:58] Joanne Hsu: Inflation, however, has come down, so Inflation being the rate of change of prices as opposed to just the price level itself, so inflation has slowed down quite a bit since 2022. [5:58] Joanne Hsu: But that doesn't mean prices have come down; prices have remained high and that's something that consumers continue to be very frustrated about. [5:58] Joanne Hsu: The thing is, we all want prices to come down, but historically speaking, it's really hard for prices to come down without something catastrophic happening in the economy, like a major recession. [5:58] Joanne Hsu: And a major recession will surely affect everyone in a very negative way. [5:58] Joanne Hsu: I think sometimes it can be hard for people who watch the macroeconomy, including policymakers, to square the fact that inflation has come down, but people are still so unhappy about how prices are eroding away at their living standards. [4:26] Joanne Hsu: new tariff regime [7:00] Joanne Hsu: trading down [15:00] Joanne Hsu: Your views matter. Your views matter for the economy and we're here to collect it.

Original transcript

[0:00] Welcome to the Michigan Minds podcast, [0:02] where we explore the wealth of knowledge [0:04] from faculty experts at the University [0:06] of Michigan. I am Juan Ochoa, [0:08] international public relations [0:09] representative for the Michigan News [0:11] Office. I want to welcome Joanne Hsu, [0:14] director of the Surveys of Consumers and [0:16] research associate professor at the [0:18] Institute for Social Research, who [0:20] specializes in household finance, [0:22] consumer sentiment, and the impact of [0:24] economic expectations on the national [0:26] economy. [0:27] Hi Joanne. Um I'm going to go straight [0:29] to the point. As a consumer, you know, I [0:32] feel worried about the economy. How [0:34] closely does a consumer confidence [0:36] actually correlate with economic [0:38] indicators like spending, employment, [0:40] and growth? [0:41] >> So here at the University of Michigan, [0:42] we've been measuring consumer sentiment [0:44] consumer attitudes towards the economy [0:46] since 1946. So we have a very long [0:48] history of of data and we know how it [0:50] correlates with the economy. Um what [0:53] decades of research has shown is that [0:55] consumer sentiment consumer expectations [0:57] tend to be a leading indicator for the [0:59] economy. When sentiment is on the [1:01] downturn, um when people feel really [1:03] poorly about the economy, uh they tend [1:05] to try to protect themselves by spending [1:06] a little bit less. Um and when consumers [1:09] do that across the board, um that can [1:11] lead um to a slowdown in the economy [1:14] because consumer spending is about 70% [1:16] of GDP in this country. [1:18] >> Yes, that's certainly what I'm doing [1:20] right now and I'm pretty sure a lot of [1:21] us are everyone is doing in in trying to [1:24] conserve some of their [1:25] um money. But can you point to periods [1:27] when consumer confidence diverge sharply [1:30] from economic reality and what's [1:32] happening? [1:34] >> Um so uh as I mentioned, historically [1:36] speaking, when people feel confident [1:38] about the economy, they tend to spend [1:39] more. When they feel less confident [1:41] about the economy, they tend to spend [1:42] less. What's really interesting um is [1:45] that the relationship between these two [1:47] has changed a little bit over the last [1:48] few years. Um so since the pandemic [1:51] starting around 2021, when post-pandemic [1:53] inflation really started to surge, uh we [1:56] saw consumer views towards the economy [1:58] take a nose dive. People felt really bad [2:00] about the economy. They were very [2:02] unhappy about inflation. But at the same [2:04] time um total spending in the US, [2:07] aggregate consumer spending, actually [2:08] remained fairly robust in the [2:10] post-pandemic period. So this was a [2:12] little bit of a puzzle. Um however, [2:15] there were actually a lot of economic [2:16] relationships that kind of broke down [2:18] after the pandemic. Um so traditional [2:21] indicators or leading indicators for a [2:23] recession, including um what what's [2:25] known as the inverted yield curve, um or [2:28] an indicator for a recession called the [2:29] Sahm rule, both of these relationships [2:31] didn't quite work as uh historically [2:34] seen um after this pandemic period. Um [2:37] one of the possible explanations for [2:39] this is, you know, right after the [2:40] pandemic, even though inflation was high [2:42] and people were really unhappy about it, [2:44] labor markets were really strong during [2:46] that time. So even though they hated [2:48] spending in in a high-price environment, [2:50] they actually had the incomes to support [2:52] it. Um a second factor that people often [2:55] don't realize is that um it is true that [2:58] national sentiment was pretty low in [2:59] 2022, um but after right after that, as [3:03] inflation started to slow down, um [3:06] sentiment, confidence for the [3:08] highest-income consumers, actually [3:10] recovered fairly quickly. It rose pretty [3:13] steadily over the the next couple of [3:15] years, whereas for people at the bottom [3:17] of the income income distribution, their [3:19] sentiment, their confidence, continued [3:21] uh to stagnate. Um and in fact, [3:24] higher-income, higher-wealth consumers [3:26] are precisely the ones that generate the [3:27] vast majority of total consumer [3:29] spending. So in in in reality, actually, [3:33] consumers continue to be quite you know, [3:35] they continue to connect their behavior [3:37] uh to their underlying feelings about [3:39] the economy, and we're seeing that right [3:41] now as well. Um sentiment um converged [3:45] for high-wealth and low-wealth people [3:46] the middle of last year, when tariff um [3:49] tariff announcements hit their peak. [3:51] Everyone was really worried about [3:52] tariffs, but since then um [3:55] higher wealth consumers, those with the [3:56] largest stock portfolios, their [3:58] sentiment has recovered cuz they've been [3:59] supported by soaring stock market [4:01] values, but if you don't own any stock, [4:03] you're not really affected by the fact [4:05] that the Dow Jones has reached another [4:07] peak, your sentiment has been really [4:08] low. So, while it is the case that we [4:11] have low sentiment right now, um even [4:13] when stock markets are soaring, um [4:15] consumers aggregate consumption is still [4:19] steady, um but it underlies um some [4:22] pretty big differences under the hood [4:23] within the population. [4:26] >> The University of Michigan Survey of [4:28] Consumers that came out in late January [4:30] showed a modest uptick in buying [4:32] conditions for durable goods. Yet, [4:35] nearly 40% of the consumers were citing [4:37] tariffs as a top concern. How do you [4:41] read that? [4:42] >> So, tariffs has been the top thing on [4:45] people's minds when it comes to the [4:46] economy for the past year, you know, [4:48] since since actually uh the the election [4:51] finalized. Um consumers have been really [4:54] concerned that um that tariffs are going [4:57] to lead to price hikes that um [4:59] uh that pass through to what consumers [5:01] actually have to pay. And they are also [5:02] really worried that tariff policy is [5:04] something that could inject that has [5:06] injected quite a bit of uncertainty into [5:08] the economy, and there's an [5:09] understanding that when there's [5:10] uncertainty, it's hard for businesses to [5:12] plan. It's also hard for consumers to [5:14] plan. [5:15] Now, it is true that durable goods [5:16] buying conditions for durable goods may [5:18] have improved um in January, but they're [5:20] still at historically very low levels. [5:22] So, it's a little bit better than it was [5:24] before, um but it's still not good by [5:27] any stretch of the [5:28] any stretch of the imagination. Indeed, [5:30] consumers, you know, at this point [5:32] consumers think it's too late really to [5:34] uh to avoid [5:36] any tariff-related hikes. Um I think [5:38] there's an understanding that, you know, [5:39] a lot of tariff policy that was [5:41] threatened in the middle of last year, [5:44] um some of it has been rolled back, um [5:47] but we're in a new tariff regime. We're [5:49] in a higher tariff situation than we [5:51] were [5:52] um a couple of years ago. Um, and [5:54] consumers understand that as far as we [5:56] can see, it's not going away. [5:58] >> What can consumers do to feel more calm [6:01] about it? [6:02] >> Uh, the number one factor on consumers' [6:04] minds is the persistence of high prices, [6:07] and tariffs are a major factor for that. [6:09] Um, inflation, however, has come down. [6:12] So, inflation being the rate of change [6:13] of prices as opposed just to the price [6:15] level itself. So, inflation has slowed [6:17] down quite a bit since 2022, but that [6:20] doesn't mean prices have come down. [6:21] Prices have remained high, and that's [6:23] something that consumers continue to be [6:25] very frustrated about. Um, and so, the [6:29] thing is, we all want prices to come [6:31] down, but historically speaking, it's [6:33] really hard for prices to come down [6:35] without something catastrophic happening [6:37] in the economy like a major recession. [6:39] And a major recession will surely affect [6:41] everyone um in a very negative way. Um, [6:44] so, I think sometimes it can be hard for [6:47] people who watch the macroeconomy, [6:49] including policy makers, to square the [6:51] fact that um inflation has come down, [6:53] but people are still so so unhappy um [6:56] about how prices are eroding away their [6:59] living standards. [7:00] >> Yeah, you mentioned recession, and [7:02] that's a scary word. But, um inflation [7:04] lifted the prices of many consumer goods [7:06] in the past couple of years. How do you [7:09] see consumers responding to these [7:11] additional budget constraints in the [7:12] survey? [7:14] >> You know, high prices, inflation, it's [7:15] something that affects all of us one way [7:17] or the other. You know, we can't we [7:18] can't avoid it. And we have seen [7:21] consumers really start to adjust to [7:22] this. Um, it's actually hard to see when [7:25] it comes to GDP growth. You know, I [7:26] already mentioned that consumer [7:27] spending's about 70% of GDP. GDP has [7:30] been growing, you know, fairly steadily [7:31] over the past year. Um, so, we haven't [7:34] actually seen much of a pullback in [7:36] consumer spending from a national level. [7:38] But, that's looking at total spending [7:40] across the country. What that doesn't [7:41] show is the fact that a lot of consumers [7:44] are changing how they spend. They're [7:46] maybe their total dollar spent is not [7:48] really changing, but they are changing [7:50] how they spend their budget. Um so we're [7:52] seeing a lot of earnings reports from [7:53] different companies that are showing [7:55] evidence that people are trading down. [7:57] They are switching, substituting away [7:59] from more expensive goods [8:01] um and and doing more spending uh on [8:04] lower cost items. And that's consistent [8:06] with the fact that, you know, Walmart is [8:07] doing really well right now. Um whereas [8:10] um companies that are uh [8:12] are higher up on the price ladder are um [8:16] are not doing nearly as well. Um so it's [8:18] pretty clear evidence that consumers are [8:21] responding to these feelings of strain [8:23] coming from the persistence of high [8:25] prices by being cautious and choosy [8:27] about how they spend their money. [8:29] >> I just bought some bird food last night, [8:31] and I probably should have saved that [8:33] money. Looking in the past index [8:35] numbers, [8:36] have there been any shifts in how [8:37] Americans are managing their budgets [8:40] that might surprise those of us just [8:42] looking at the headlines? [8:44] >> So total spending hasn't dropped off as [8:47] much as one might expect given how bad [8:49] people feel about the economy. [8:51] Um and and so, you know, one of the [8:53] things is that, you know, again, total [8:56] spending might be held the same, but [8:58] people aren't necessarily [9:00] spending the same way. They're might be [9:02] spending the same amount of money. They [9:03] Their total budget may maybe the same, [9:05] but they're changing how they spend [9:06] their money. I think one of the [9:08] interesting things is that few of the [9:10] categories that have seen a lot of [9:12] inflation um and and have persistently [9:15] high prices are things like the cost of [9:17] housing, the cost of um insurance, the [9:20] cost of of education, you know, [9:23] particularly college, higher ed. Um and, [9:25] you know, besides higher ed, you know, [9:27] everyone needs some sort of housing. Um [9:30] insurance is also really critical to us. [9:32] And what that means is if those [9:33] categories get really expensive, people [9:35] are having to pull back somewhere else. [9:38] Um [9:38] and um and so, you know, we're we're [9:41] seeing um [9:43] despite this low level of confidence, um [9:46] you know, people are maintaining their [9:47] spending from now, but again, it looks [9:49] like that this is very much being driven [9:51] by the upper end of the income and [9:52] wealth distribution. Um people who are [9:55] very wealthy, who have high incomes and [9:56] stable jobs, they're not expecting to [9:58] lose their jobs. [9:59] They're still supported. Um they they [10:01] still have support in their budgets and [10:03] they're still able to spend well. So, if [10:05] they [10:05] um if people at the top of the income or [10:07] wealth distribution are not altering [10:09] their spending much, that would be [10:10] another reason why we're not seeing much [10:12] of a pullback on the aggregate. [10:14] >> Based on the trends, what are you seeing [10:16] that is most surprising? [10:18] >> Um one of the things that you won't [10:19] necessarily notice if you're just [10:20] looking at the headline, you know, right [10:22] now we have readings in the 50s. These [10:23] are pretty low readings comparable to [10:25] 2022, um when we got our all-time [10:29] historical low in June when inflation [10:30] was at its peak. You don't realize that [10:32] actually consumers see a very different [10:34] economy now in 2026 than they did 4 [10:36] years ago. Um pri- mainly, they're [10:40] seeing a huge difference in labor [10:41] markets. So, [10:44] in 2022, labor markets were incredibly [10:46] strong. Anyone who wanted a job could [10:48] probably find a job opening somewhere. [10:50] You know, we were calling it the great [10:52] resignation. [10:53] Um people were job hopping. Um [10:55] unemployment was very, very low his- [10:57] from a historical perspective. Um now, [10:59] fast forward to 2025, um the big trend [11:02] from a year ago to now has been a [11:04] um pretty severe deterioration in how [11:06] people see labor markets. Um [11:09] the share of people who expect [11:10] unemployment to go up, it doubled [11:12] between last January, January 2025, and [11:15] this year. Um so, consumers are really [11:18] seeing a darkening on the horizon with [11:19] respect to labor markets. [11:21] Um and they're also, you know, it's not [11:24] really a problem. It may not be a [11:25] problem to have um unemployment that [11:28] goes up if you yourself are not [11:30] affected, right? You might think that [11:32] this is a problem that other people [11:33] face, but my job is secure, so I can [11:36] just keep spending. Increasingly, that's [11:38] not what we're seeing in the data [11:39] anymore. We have a specific question on [11:43] what's the probability you or your your [11:45] spouse will lose a job in the next 5 [11:46] years? And that has gone up a lot in [11:49] 2025 and in the beginning of 2026. So, [11:51] people are not only worried that [11:54] national unemployment is going to rise, [11:55] they are increasingly worried that they [11:57] themselves might be affected. And that [12:00] is a pretty big difference that you [12:01] wouldn't necessarily see just from the [12:03] headline. [12:04] >> Yeah, I have a family member who [12:05] recently lost their job, and they've [12:07] applied to at least 200, and they still [12:11] haven't even heard for an interview, [12:13] which is pretty scary. [12:15] >> Yeah. [12:15] >> Even with a steady GDP growth, a lot of [12:18] consumers still seem uneasy about the [12:20] labor market. How much of an impact do [12:22] you think this caution around job [12:24] security will have on actual spending [12:26] habits over the next few months? [12:28] >> So, at this time, unemployment remains [12:31] fairly low, um but consumers a hold a [12:34] pretty strong belief that it that it is [12:36] going to get worse in the future. And if [12:38] that comes to bear, I would expect them [12:40] to react with how they manage their [12:42] pocketbooks. Um [12:44] in 2022, we definitely saw that people [12:47] were willing to spend even though they [12:49] hated it, and they were feeling really [12:50] negative about the economy because they [12:53] had the incomes to support that [12:54] spending. [12:55] Now, we're in a completely different [12:57] situation. [12:58] Um you know, there's a consensus that [13:00] labor markets are much weaker now than [13:01] they were, you know, a few years ago. Um [13:04] and our data show that consumers are [13:06] continuing to expect labor markets to [13:08] worsen and unemployment to go up. Um so, [13:11] if consumers start having to worry about [13:13] how much income they're going to have in [13:15] the year ahead, they are going to be [13:16] less likely, even less likely to want to [13:19] spend. So, I've already talked about how [13:20] there's evidence that consumers have [13:22] been trading down what they spend. [13:24] They're being choosier about what they [13:25] spend, but they haven't necessarily [13:27] pulled back their total spending that [13:28] much, at least on aggregate. We very [13:30] well could see a larger pullback if [13:33] people just don't know if their incomes [13:34] are going to be are going to be secure. [13:38] You know, we are seeing more signs of [13:39] financial strain in other economic data, [13:42] you know, delinquency rates on um [13:45] on on loans are starting to pick up or [13:47] they they've been picking up and are [13:48] continuing to pick up. And you know, [13:51] consumers are getting increasingly [13:52] worried. There are you know, there are [13:54] news about layoffs all the time. Job [13:55] openings are very very low right now, [13:58] um which [13:59] you know, I think even with low [14:00] unemployment, it could be the case that [14:02] if you have a job, um you may be secure. [14:06] You may at the moment you might be [14:07] secure, but if you don't have a job like [14:09] your family member and you're looking [14:10] for one, this is a terrible time to be [14:12] looking for a job. So, you know, I would [14:14] be watching labor markets [14:16] um going forward. Um you know, there are [14:19] signs of weakness even though [14:20] unemployment rates are still pretty low, [14:23] um but if we continue trending in this [14:25] weakening direction, um [14:28] it seems difficult to find a way for [14:30] consumers to maintain their spending for [14:33] most of the population. [14:35] Again, we're still seeing that wealthy [14:37] people, people with the largest stock [14:39] portfolios, they are feeling okay about [14:41] the economy, so they tend to spend a lot [14:44] of money, so aggregate spending can be [14:46] supported by that group, but just in the [14:48] last couple of weeks, I don't know when [14:49] this is going to air, but in the last [14:50] couple of weeks, we've been seeing a lot [14:52] of volatility and movement in stock [14:53] markets. Um [14:55] and so that is not a sure thing, either. [14:58] >> I don't have a large portfolio, but I'm [15:00] certainly going to be watching my [15:02] spending. One-year inflation [15:04] expectations dropped to 3.5% in [15:07] February, [15:09] but long-term views actually moved up [15:10] slightly. Does this suggest consumers [15:12] believe price relief is only temporary? [15:16] >> Consumers really don't like inflation. [15:18] Um however, they have noticed that [15:20] inflation has come down. Um you know, as [15:23] as you said we're at 3 and 1/2% for a [15:25] year ahead inflation. That is much lower [15:26] than what we were seeing the middle of [15:27] last year when tariff rhetoric was at [15:30] its peak. [15:31] So, [15:33] consumers are aware it has slowed. [15:36] However, inflation expectations both in [15:38] the one-year horizon as well as the 5 to [15:40] 10-year horizon are still higher than [15:42] they were in 2024 and also before the [15:45] pandemic. [15:46] So, consumers don't necessarily think [15:47] we're completely out of the woods yet. [15:49] Those long-run expectations haven't [15:51] returned to where they were before this [15:53] all started. [15:54] >> Joanne, we've reached the end of our [15:56] session, but what do you want our [15:58] listeners to take away? [16:00] >> That your views matter. [16:02] Your views matter for the economy and [16:03] we're here to collect it. People are [16:05] watching the data closely [16:07] and you know, I'm really proud to be in [16:09] this position where I can bring the [16:11] voice of American consumers to [16:13] decision-makers, policy-makers and [16:14] businesses. So, if you receive an [16:16] invitation to the survey, I encourage [16:18] you to take it. [16:19] >> Well, thank you. Thank you for joining [16:20] us today and hopefully the economy turns [16:22] to a positive point. [16:24] >> That's what I'm hoping for, too. [16:26] >> Thank you for for being here. [16:28] >> Thank you. [16:29] >> Thank you for listening to this episode [16:30] of Michigan Minds, produced by Michigan [16:32] News, a division of the University's [16:34] Office of the Vice President for [16:36] Communications.