Consumer Confidence in 2025: Navigating Rising Incomes Amid Persistent Pessimism

In early-to-mid 2025, U.S. consumer sentiment has reached levels not seen since the early days of the COVID-19 pandemic, even as household finances continue to heal. Consumers remain concerned about inflation; many feel as if their income is not rising with rising costs, and that the economic environment will deteriorate. The data suggests otherwise. 

Consumer Confidence is Low, Spending and Wages Are Up

While consumer sentiment is not a perfect indicator of the economy’s future direction, it is a notable index that helps paint a picture of the general feelings of American consumers. The University of Michigan’s Consumer Sentiment Index closed May 2025 at 52.2, dipped to 50.8 in April, then rebounded to 60.7 in June and 61.8 in July, its strongest reading since March 2024 but still far below the pre-pandemic norm near 95. 

Historically, sentiment falls when prices rise faster than wages. Yet a Gallup Economy & Personal Finance survey shows anxieties remain high even with real‐wage gains. Nearly three in ten adults 29% still single out inflation or the high cost of living as their family’s biggest financial problem, and a record-high 53% say their overall finances are getting worse, while 57% worry they won’t be able to maintain their standard of living. Those perceptions persist even though, in aggregate, wages are beating inflation. 

Wages Continue to Outrun Prices

Across the country, earnings have been rising faster than prices for more than two years. Annual wage growth has outpaced inflation every month since April 2023, averaging roughly 1 percentage point per month. The June 2025 CPI stood at 2.7% year-over-year, while the real average hourly earnings reported by the Bureau of Labor Statistics were 1% higher than a year earlier, marking the ninth consecutive positive print. The pandemic-era price surge has not vanished, but it has largely stabilized. Consumers are still grappling with the lingering price shock of 2021-22, even though the rate of increase has slowed. 

While surveys are not perfect for gauging economic activity, it is noteworthy. Across the United States, wages are on the rise. While many individuals feel their earnings haven’t kept pace with inflation, they may be underestimating the real value of their income. From June 2024 to June 2025, real hourly earnings have increased 1.3%, indicating that wages have been increasing slightly faster than inflation. The price increases triggered by the global pandemic have not vanished, nor have they decreased significantly, and consumers are still grappling with the lasting effects stemming from the pandemic. The pandemic brought unprecedented inflation, widespread supply and demand shocks, and unparalleled uncertainty, not only in the economy and financial markets but also regarding our health and well-being. 

Inflation Perception

A major driver of today’s unease is the public’s memory of past price jumps. One-year-ahead inflation expectations have eased to 4.4% from 5% in July’s University of Michigan survey and 3.0% from 3.2% in the New York Fed’s June reading, but consumers continue to cite inflation as a top worry. Talk of broad new tariffs amplifies that concern. Tariffs remain broadly viewed as inflationary, potentially raising prices and eroding purchasing power. Cultivating prudent spending habits therefore feels urgent. 

Confidence Is Low, People Keep Spending

Although the sentiment index captures how people feel, it exerts little direct influence on actual spending. In 2022, sentiment plunged to a record 50, even as spending continued. The same pattern is playing out in 2025: the saving rate slipped to 4.5% in June, and nominal retail sales rose 0.64% month-over-month and up 3.9% year-over-year. Households may grumble, but they are still opening their wallets.