American consumers are more pessimistic about the economy than at any point since December 2023, even as the S&P 500 sits within 2% of its all-time high and corporate earnings growth tracks above 20% year-over-year. The CNBC All-America Economic Survey released July 17 found 61% of respondents hold a negative view of both current conditions and the future outlook, while nearly half reported cutting back on essential purchases including food and medical care. The same week, the University of Michigan’s consumer sentiment index posted its strongest monthly gain since February, creating a divergence that complicates the economic picture heading into the Federal Reserve’s July 29 rate decision.
Key Takeaways
- The CNBC All-America Economic Survey found 61% of respondents are pessimistic about the economy, the highest since December 2023; only 25% expressed optimism
- Nearly half of respondents reported cutting back on essential purchases including food and medical care, up six percentage points from CNBC’s April survey; two-thirds are reducing discretionary spending on dining and entertainment
- The University of Michigan’s preliminary consumer sentiment index rose 9.9% to 54.4 in July, beating all estimates in a Bloomberg survey, but remains 12% below its year-ago level; more than 70% of interviews were completed before U.S. strikes on Iran resumed July 7
- Advance retail sales for June reached $768.6 billion, up 6.7% year-over-year but only 0.2% month-over-month, with online retail and motor vehicles driving gains while clothing, health care, and grocery categories declined
- One-year inflation expectations fell to 4.2% from 4.6% in June but remain well above the 3.4% reading recorded in February before U.S.-Iran hostilities began
Why Are Consumers Pessimistic Despite A Strong Stock Market?
The 61% pessimism reading in the CNBC survey represents the widest gap between market performance and consumer mood since the post-pandemic inflation period. The S&P 500 has gained more than 15% year-to-date, Q2 corporate earnings are tracking above 20% growth, and unemployment remains historically low. Those indicators traditionally correlate with improving consumer confidence, but the relationship has broken down in 2026 because the gains are concentrated in asset prices and corporate balance sheets rather than in household purchasing power.
The survey of 1,000 registered voters found that the cost of everyday goods remains the dominant concern. Nearly half of respondents said they are cutting back on essential purchases, a six-percentage-point increase from CNBC’s April survey. Two-thirds reported reducing discretionary spending on dining, entertainment, and travel. The share of voters who expect economic conditions to worsen outpaced those expecting improvement by a 41-to-29 margin. Micah Roberts, a Republican pollster who worked on the survey, described the electorate as being in a distinctly sour mood heading into the midterm election cycle.
The disconnect reflects what economists have described as a “two-speed” consumer economy, where households with significant investment portfolios benefit from rising equity values while wage earners without substantial assets absorb the cumulative effect of prices that have risen more than 20% since 2020 and have not meaningfully retreated.
What Did The University Of Michigan Sentiment Index Show?
The University of Michigan Surveys of Consumers <a rel=”nofollow”> posted a preliminary July reading of 54.4, up 9.9% from the June final of 49.5 and the highest level since February 2026. The result topped all estimates in a Bloomberg survey of economists and marked the second consecutive month of approximately 10% gains following the record low of 44.8 recorded in May.
All five index components improved. The Current Economic Conditions Index rose 15.1% to 54.9, while the Consumer Expectations Index climbed 6.5% to 54.0. Buying conditions for durable goods and year-ahead business conditions each jumped roughly 20%. The improvement was broad-based across age, income, wealth, and political affiliation, with particularly strong gains among consumers without a bachelor’s degree.
Surveys of Consumers Director Joanne Hsu attributed the rebound primarily to easing gasoline prices in recent weeks. However, Hsu cautioned that the upward momentum may prove difficult to sustain. More than 70% of the July interviews were completed before the U.S. resumed strikes on Iran on July 7 and the subsequent reacceleration in gas prices that pushed the national average back toward $4 per gallon. The sentiment index remains 12% below its July 2025 level, and one-year inflation expectations, while down to 4.2% from 4.6%, remain well above the 3.4% reading recorded before the Iran conflict began in February.
What Does The Retail Sales Data Reveal About Actual Spending?
The U.S. Census Bureau’s advance retail sales report <a rel=”nofollow”> for June showed total retail and food services sales of $768.6 billion, up 0.2% from May and 6.7% higher than June 2025. Core retail sales excluding automobiles and gasoline rose 0.4%, and sales excluding gasoline stations increased 0.7%.
The category-level data revealed where consumers are drawing sharper lines. Motor vehicle dealers posted a 1.9% monthly gain. Nonstore retailers, the Census Bureau category capturing the bulk of e-commerce, also rose 1.9%, boosted in part by Amazon’s Prime Day promotional event, which ran June 23 through 26. Electronics and appliance stores gained 0.8%.
The declines told a different story. Clothing and accessories stores fell 0.3%. Health and personal care stores dropped 0.8%. Grocery sales slipped 0.4% from May. The pattern tracks closely with regional anecdotes from the Federal Reserve’s Beige Book and independent consumer surveys. New York businesses reported that luxury retailers continued to perform well, but a coffee shop operator said the average purchase amount declined, a dental practice cited increasing appointment cancellations, and auto dealers noted affordability concerns restraining new vehicle demand.
What Does The Divergence Mean For The Economy?
The gap between improving sentiment surveys and deteriorating spending behavior on essentials suggests consumers are adjusting to a permanent cost baseline rather than anticipating price relief. The University of Michigan’s five-year inflation expectation held steady at 3.3%, above the 2.8% to 3.2% range that prevailed throughout 2024. Consumers appear to have accepted that prices will not return to pre-2022 levels and are restructuring household budgets accordingly.
The spending data also complicates the Federal Reserve’s calculus ahead of its July 28-29 meeting. The 0.2% monthly retail sales gain is technically positive but represents the slowest month-over-month growth in three months. The fed funds rate remains at 3.50% to 3.75%, and Fed Chair Kevin Warsh has maintained a hawkish tone emphasizing that inflation remains above the 2% PCE target. The June payrolls report added only 57,000 jobs, the weakest print in months, suggesting the labor market may be cooling faster than headline unemployment figures indicate.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Readers should consult a qualified financial advisor before making investment decisions.
FAQs
What percentage of Americans are pessimistic about the economy? The CNBC All-America Economic Survey found 61% of respondents are pessimistic about both current conditions and the future outlook, the highest since December 2023. Only 25% expressed optimism about the economy.
What is the University of Michigan consumer sentiment index reading for July 2026? The preliminary reading is 54.4, up 9.9% from the June final of 49.5. The result topped all economist estimates and marks the highest level since February 2026, though the index remains 12% below its year-ago level.
Are consumers cutting back on spending? Nearly half of respondents in the CNBC survey reported reducing spending on essentials including food and medical care, up six percentage points from April. Two-thirds said they are spending less on discretionary categories like dining, entertainment, and travel.
What did the June retail sales report show? The Census Bureau reported total retail and food services sales of $768.6 billion in June, up 0.2% from May and 6.7% from June 2025. Online retail and motor vehicles drove gains, while clothing, health care, and grocery categories declined.
What are current inflation expectations? The University of Michigan’s one-year inflation expectation fell to 4.2% from 4.6% in June, while the five-year expectation held at 3.3%. Both remain above pre-Iran-conflict levels recorded in February 2026.
When is the next Federal Reserve rate decision? The FOMC meets July 28-29, with the rate decision announced at 2:00 PM ET on July 29. Market consensus expects a hold at 3.50% to 3.75%, though some traders have priced in a potential hike.
