Any economist trying to prognosticate the future of a nation’s economy will look to measures of consumers’ optimism—or pessimism—about their financial environment. Put simply: If people are feeling upbeat, they’re likely to spend more. If they’re worried about their jobs, investments, or bank balances, they’ll spend less.
But right now it’s hard to know what to make of three apparently conflicting data points: The Conference Board’s Consumer Confidence Index surged in May to 98, a buoyant number indicating happy days. Similarly, the Present Situation Index rose to 135.9. Let’s clink our Champagne flutes! But wait: The Expectations Index, at 72.8, is well below 80, which usually signals a recession.
So what gives? The answer appears obvious: A looming trade war has been postponed, with a slew of major new tariffs paused, being challenged in the courts, or temporarily moderated as trade negotiations continue—but consumers fear it will return and lead to higher prices, job losses, and economic strife. That’s bad news, because history shows consumers are so powerful in the U.S. economy that their gloomy expectations can be self-fulfilling, and touch off a miserable reality.
Sensing consumers’ moods is thus a valuable but elusive skill. In October 2007, as today, the U.S. economy seemed to be near a turning point, and consumers’ behavior appeared to be a critical factor. But as I wrote then in my business trends column for Fortune, Value Driven, predicting that America’s consumers will spend less, not more, is almost always a mistake.
“One of the biggest sucker’s games in the whole world of economics,” I pronounced, is “declaring that the U.S. consumer is tapped out.” Indeed, a chart of U.S. personal consumption expenditures over the past several decades is one of the smoothest upward lines you’ll ever find in real-world economic data. The line has turned perceptibly down only twice since 1959—during the COVID pandemic beginning in 2020, and during the 2008–2009 recession.
So when I argued in late 2007 that consumers were near the end of their collective rope, I knew I was going out on a limb. “I must be nuts,” I wrote. But I felt the evidence was overwhelming—as did New York University professor Nouriel Roubini, whom I quoted in the piece. (Roubini is now often referred to as “Dr. Doom” for his prescient warnings of the 2008 housing correction and the recession it kicked off.)
Eight months later, that bleak prediction proved correct. In June 2008, consumption not only turned down, it kept falling for nine months. Nothing like that had happened in decades, nor has anything like it recurred since. I hadn’t forecasted the massive 2008–2009 recession; I only said mildly that a recession “wouldn’t surprise me.”
Are we in a similar situation today? I haven’t done the research to make a table-pounding case one way or the other—and I don’t plan to do so. I’ll be happy to quit while I’m ahead.
