June 16, 2025

Hi, everyone. My name is Taylor St. Germain with ITR Economics. Welcome to this edition of TrendsTalk. We at ITR are your apolitical and unbiased source of economic intelligence. And today I wanted to talk about a headline that’s been out there in the media related to the consumer.

Most of the articles are highlighting that consumer sentiment is weak. Consumer expectations are down. And a lot of folks are concerned about what that means for the broader economy. There’s this thought process that consumer sentiment or consumer expectations is going to limit spending because consumers have anxiety for one reason or another. We look at specific data sets to understand this trend. So the data set I’ll highlight today is the US Index of Consumer Expectations. That is currently down 30.4% on a 1/12 basis on a month over month basis. So consumer expectations are weak. The headlines have that right.

But what does that mean for the broader economy? Well, if you correlate the US Index of Consumer Expectations to US Total Retail Sales, you find that there’s very little correlation between the two. And I think that’s what’s being confused out there in the media is that consumer expectations really doesn’t mean much in terms of the predictability of our spending habits from a retail sales perspective. Retail sales, as we’re sitting here today, is still up 3.2% year over year. There really is no correlation between consumer expectations and retail sales. So as an economist, when I see consumer expectations down, I’m not as worried about what that means for overall consumer spending or overall retail sales.

Now, consumer expectations do have an impact on one aspect of the economy. Again, not GDP or retail sales, but the stock market. If you overlay the S&P 500 with consumer expectations, that’s really where the correlation is. So consumer expectations being down is really more of a reflection of the stock market than it is overall consumer spending habits or retail sales. The consumers are feeling some of the pain that we felt in the stock market throughout this year, but it doesn’t mean that GDP is headed into a recession or that retail sales is going to be negative.

When we talk about the stock market, I’ll remind you, you know, economists often use the joke, the stock market predicts 10 in every five recessions. The stock market is not a very reliable indicator when you look at overall GDP. There is some correlation there. I’m not going to suggest that there’s no relationship between the stock market and the economy, but there’s times like we saw in the first quarter of 2022 when the stock market goes into a correction and GDP continues to grow.

So be very careful about using these headlines, as we all know, to understand the broader economy, but especially that consumer expectation relationship. So even though consumer expectations are down, ITR is not forecasting a recession. We still expect retail sales to improve as we move into the second half of 2025. And I hope that gives you all some comfort that the economy is still on healthy footing and the trajectory for this improvement in the second half of this year is still very much on track. I know everyone’s staring at their 401ks lately and it’s been a tumultuous time, but when we look at the broader outlook, when we look at the broader economy, there’s a lot of growth out there that we should be preparing for as we move later into this year and still into 2026.

So I hope that helps clear up some of the noise out there. We’ll continue to watch the state of the consumer. It’s certainly important, but just be very careful about correlating some of these headlines with the broader economy. And that’s where I’ll come in and continue to weed through some of this noise and provide you with confidence as we move into the future.

Thanks for joining me on this episode of TrendsTalk. Please like and subscribe to Trends Talk wherever you listen to your podcasts. I look forward to seeing you all in the next one. Thanks so much and take care for now.