Americans keep spending. Their feelings about the economy just split in two

Spending holds

Weekly consumer spending data shows continued strength, and the support comes from different places depending on income. Job growth is the main driver for lower-income families. For middle- and high-income households, spending is supported by high asset prices and strong cash flows from fixed income. The result is a consumer who keeps spending even as confidence falls. m:…3298

The gap between feeling and spending is the story. Consumer confidence is declining across the income distribution, and the difference between sentiment and actual spending behaviour is significant. Inflation data for groceries and electricity is rising, yet consumer behaviour has not yet changed significantly in response to affordability concerns. m:…3298 m:…3048

Sentiment splits

The midterm elections widened the sentiment gap without moving spending at all. Morning Consult found Democrats' consumer sentiment rose 6 index points after the Democratic sweep, while Republicans' fell 6 points, a reaction larger than after either the 2018 or the 2022 midterms. The overall topline stayed flat because the two moves cancelled each other out. Expectations for personal finances and the broader economy accounted for almost all of the Democrats' improvement and most of the Republicans' decline; the Republicans' largest drop came in their five-year business outlook. m:…6543

Demand did not follow sentiment in either direction. Morning Consult's Consumer Health Index showed no matching improvement in demand, and consumer demand did not change among US adults after the midterms. Demand edged down among both Democrats and Republicans. The election changed how people feel about the economy; it has not yet changed what they buy. m:…6543

Margins hold the line

Companies, meanwhile, have been quietly keeping the margin. Research finds the median public company's gross margin rose about 3 percentage points over the last decade, and 86% of S&P 500 companies beat earnings estimates in the second quarter of 2026. The average gross margin of the 500 largest US companies rose 9% from 2006 to 2016 and a further 5% from 2016 to 2026. m:…7287

The resilience is broad rather than concentrated in one sector. Average margins for business-to-business companies grew 8% over the past decade, and business-to-consumer margins grew 5%. The wholesale trade sector's average gross margin has risen by almost 30% since 2006. The reading is that corporations have been able to pass on supply shocks or increase productivity, which is consistent with a consumer who keeps paying higher prices. Gross margins here measure the difference between net sales and the cost of goods sold, and do not capture labour and overhead costs. m:…7287

Part of the margin story is a change in what the public market is made of. The number of professional services firms nearly doubled from 2006 to 2026, while the number of manufacturing firms fell by a quarter, and professional services firms have higher average gross margins than manufacturing firms. Some of the decade's margin growth is composition, not pricing power, which matters for anyone assuming today's margins will survive the next downturn intact. m:…7287

Put together, the three pictures describe an economy running on two tracks. Spending is funded by jobs at the bottom and asset prices at the top, sentiment is now a partisan signal rather than an economic one, and companies are holding margins by passing costs through. The risk in that arrangement is straightforward: if the spending is being funded by asset prices and fixed-income cash flows, it is sensitive to the same rate path that is keeping inflation sticky, and the sentiment split means the warning signs will arrive as politics before they arrive as data. m:…3298 m:…6543 m:…7287