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Consumer confidence readings paint a much weaker picture than is suggested by spending data. This likely reflects the bifurcation story whereby spending is being driven by a relatively small cohort of high-income households while middle and lower-income households are feeling more financial pressure and are more nervous about what the future holds.
Consumer Pessimism Spreads
The Conference Board measure of January US consumer confidence is surprisingly weak, dropping to 84.5 from an upwardly revised December print of 94.2, and well below the 91.0 consensus prediction. The current conditions index and the expectations component fell by similar amounts with headline sentiment at its weakest since 2014 – so things are apparently worse for households today than they were post the ’Liberation Day’ fallout and the pandemic.
Source: Macrobond, ING
Yet They Keep Spending...
It is fair to say that the relationship between sentiment and spending has broken down of late with sentiment surrounding the economic outlook at levels historically consistent with static spending, whereas real consumer spending expanded at 3.5% growth in 3Q 2025. This divergence likely reflects the narrative that the top 20% of households by income are driving the growth story while the bottom 60% by income are treading water. It is the median household, which is going to be within that bottom 60%, that is reflected in the sentiment survey.
This provides ongoing evidence of the K-shaped story of the US economy. The bottom 60% are worried about their jobs, worried about tariffs squeezing spending power and with Federal Reserve data showing that the bottom 60% of households hold only 15% of total household wealth, they have not benefited much from the surge in property and stock prices. The top 20% of households by income spend more on services, so are not impacted by tariffs to the same degree, have a better sense of job security, and they hold 70% of household wealth. This bifurcation shows little sign of changing in the near term.
Workers Suggest More Bad News on Jobs Are Coming
One of the key metrics that we look at within this Conference Board consumer confidence report is the jobs plentiful less jobs hard to get measure of how people see the jobs market. Only 23.9% of respondents think "jobs are plentiful" while 20.8% think "jobs are hard to get". The rest are unsure. This gives a net reading of 3.1%, which is the worst outcome (aside from the pandemic) since 2016. The chart suggests that the risk is that unemployment continues ticking higher on the basis that people see and feel changes in the jobs market before they show up in the data.
Source: Macrobond, ING
Given this backdrop it appears to make sense for the Federal Reserve to continue moving monetary policy closer to a neutral setting. They are unlikely to do anything tomorrow, but we continue to look for at least two further rate cuts later in the year.
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