The Miserable Spender: Why Consumer Feelings and Consumer Wallets Have Parted Ways

The economy's most confusing signal has advertisers and retailers rethinking everything they know about measuring demand

The University of Michigan’s consumer sentiment index just fell to near its lowest point since tracking began in 1952. Americans are telling pollsters they feel terrible about their job prospects, anxious about inflation, and ready to cut back on spending. And yet—retail sales are up. Travel is at record levels. Live Nation reported its highest-ever concert ticket sales in early 2025. People are somehow both miserable and swiping their credit cards.

For marketers and business leaders, this disconnect isn’t just a curiosity—it’s upending decades of conventional wisdom about how to read consumer demand.

When Sentiment Stopped Predicting Spending

Consumer sentiment surveys have been a staple of economic forecasting since the 1950s. The logic was simple and intuitive: ask people how they feel about the economy, and you’ll get a pretty good indication of what they’ll do with their money. For most of modern economic history, that held true.

Not anymore. As the Federal Reserve’s Kansas City branch noted in recent research, the link between consumer sentiment and actual spending growth has become “modest” at best. Fed Chair Jerome Powell acknowledged this directly: “The link between sentiment data and consumer spending has been weak. It’s not been a strong link at all.”

The divergence started during the pandemic and has only widened. In June 2022, when the sentiment index hit its all-time low amid raging inflation, Americans were still spending at a healthy clip. In 2023, during a Congressional standoff that cratered confidence, consumers went to concerts and took vacations anyway.

The Income Story Behind the Headline Number

The explanation starts with a methodological quirk that matters enormously for marketers: sentiment surveys treat all respondents equally, but spending is anything but equal.

Research from the Boston Fed reveals just how lopsided consumption has become. The top fifth of earners—households making $121,000 or more—now generate spending seven times greater than the bottom fifth. And here’s the crucial detail: high-income consumers have accumulated significant room on their credit cards relative to 2019, while lower-income households are carrying debt loads well above pre-pandemic levels.

Bank of America’s internal data tells a similar story. Households in the top 5% by income grew their luxury spending by 10.5% year-over-year, particularly on international shopping and high-end hotel stays. Meanwhile, chains that serve budget-conscious consumers—Chipotle, Home Depot—have reported softening from lower-income customers.

The wealth effect amplifies this dynamic. The University of Michigan’s surveys show that consumers with the largest stock holdings posted notably higher sentiment than others, driven by equity markets that continue to hover near record levels. A dollar increase in stock wealth now leads to about 5 cents of additional consumer spending, up from less than 2 cents in 2010, according to Oxford Economics.

What This Means for Marketers

If you’re running marketing for any consumer-facing business, the implications are significant.

Rethink your research approach. National sentiment numbers may tell you very little about your actual customers. Understanding sentiment at a much more granular level—by income cohort, geography, and category—has become essential. As McKinsey’s ConsumerWise research team put it, the decoupling “makes it only more important to understand consumer sentiment at a much more granular and detailed level.”

Watch for category-specific signals. The “lipstick effect”—consumers indulging in small luxuries during uncertain times—appears alive and well, though it’s manifested in unexpected places. Mass-market fragrance sales are up 17% year-over-year, according to Circana. L’Oréal’s CEO recently mused whether to call it “the smell good fragrance effect.” Discount retailers like T.J. Maxx are seeing sales bumps from stretched consumers looking to maximize value.

Premium and value may both be winning—at the same time. This isn’t a traditional bifurcation. It’s more subtle. LVMH’s U.S. sales were up 3% in Q3 after declining earlier in the year. Meanwhile, Numerator data shows both those earning over $100,000 and those under $60,000 increased spending—just at different rates (4.3% versus 3.8%). The middle isn’t disappearing; spending is just distributing unevenly.

Holiday planning requires new assumptions. According to PwC’s 2025 Holiday Outlook, consumers expect to reduce seasonal spending by 5%—the first notable drop since 2020. But Gen Z respondents project cutting budgets by 23%, far exceeding other generations. Deloitte’s holiday survey found 77% of shoppers expect higher prices on holiday goods, and 57% expect the economy to weaken—the most negative outlook since 1997. Yet spending has remained surprisingly resilient in recent holiday seasons despite similar pessimism.

The Dangerous Middle Ground

What worries economists isn’t the current disconnect—it’s what happens when it resolves. For now, high earners are propping up the consumer economy even as sentiment converges negatively across all income groups. As Joanne Hsu, director of the University of Michigan’s consumer surveys, warned: high-income consumers are now “very worried about the trajectory of inflation, about business conditions, unemployment.” If they start to pull back, it’s hard to see how consumer spending can keep growing.

The generational angles add another layer. Younger consumers are increasingly willing to take on debt for experiences and goods despite financial stress—a “YOLO” spending pattern that prioritizes present enjoyment over traditional milestones like homeownership. Credit card usage among Gen Z shoppers overtook debit card usage in mid-2024, according to J.P. Morgan data. Whether that represents evolved preferences or delayed consequences remains unclear.

Stop Trusting the Headline

The most practical advice for any marketer or business strategist: stop trusting the headline sentiment number. It’s telling you what people say they feel, which has become divorced from what they do. The real work is understanding who your actual customer is, what their financial position looks like, and what trade-offs they’re making.

Consumer sentiment will eventually align with consumer spending—either through people feeling better, or through people finally closing their wallets. Brands that have built their 2026 plans around pessimistic headlines may find themselves underinvested when the market stabilizes. Those that have ignored the warnings entirely may be caught flat-footed if the convergence goes the other way.

The honest answer is that we’re in uncharted territory. Feelings and spending have parted ways, and neither traditional forecasting models nor gut instinct can tell us when they’ll reunite—or which one will have to move.