Why Consumers and Economists See Different Economies

Good afternoon, everybody. We invite you to come on in and take your seats. We're going to get started here in just a couple of minutes.

Welcome in. Go ahead and make yourselves comfortable. Grab an open seat. My name is Steve Edwards. I'm the executive vice president of external affairs and civic engagement here at the Federal Reserve Bank of Chicago, and we are delighted to have you with us on this rainy Wednesday, no less. But we promise an engaging and insightful conversation and very much encourage you to participate. I'll talk about that in just a second. On behalf of my colleagues here at the Chicago Fed, welcome to "Why Consumers and Economists See Different Economies." This topic is of vital interest to all of us here at the Chicago Fed and to the Federal Reserve system as a whole, in part because understanding what consumers are feeling and especially how they're behaving is central to our ability to deliver on the jobs that Congress has given us to do. We call it our dual mandate of stabilizing prices and maximizing employment on behalf of the American people. And increasingly, as you hear more about today, economists have noticed a divergence between how consumers are feeling about this economic moment and some of the official measures of economic activity. And we can even see it in the last 24 hours: consumer confidence sinking. At the same time, consumer spending and unemployment and economic growth and equity prices are hanging in there pretty solidly by historic standards. So what's driving that gap? What's shaping consumer attitudes? And what are they telling us, if anything, about the current and future direction of the economy? So before we dive into those questions and I turn things over to our partners for today, let me also just give you a couple of housekeeping notes. As I mentioned, we will invite your participation and you can see on the two screens here in the room. We have QR codes and a link to Slido that will take you to the online platform that allows you to submit questions of your own and vote up questions of others. And as we move forward a bit later in today's conversation, our moderator will invite your questions and participation that way. We also invite you to stick around for a reception after our conversation. It will take place out here in the atrium where we'll have refreshments and an opportunity to continue the discussion amongst ourselves and with our panelists as well. So, we encourage you to stick around for that. And lastly, in the atrium, you will also find restrooms if you need them. You can follow the signage or ask my colleagues here at the Fed and we'll be happy to direct you. None of today's festivities and conversations would be possible without the tremendous collaboration of our partners at NORC at the University of Chicago. They've been essential at every step of the way and in conceiving of the conversation and assembling the people that we'll hear from today. So, to formally get things underway, without further ado, it's my pleasure to bring to the podium the president and CEO of NORC, Dan Galen. Dan, [applause]

Good afternoon, everybody. Thank you, Steve, for the kind introduction and for creating this event with Brian Fabes and other colleagues. Thanks to the Federal Reserve Bank of Chicago for partnering with us to host the session and to our moderator and panelists, and especially thank you to all of you for coming for what will be, I think, a really interesting discussion. NORC has had this wonderful partnership with the Fed for a very long time. We've been around here in Chicago for more than eight decades. Our mission has always been to produce rigorous and objective, nonpartisan data to help governments, businesses, nonprofits, and communities confront the difficult challenges facing society. And of course, we have a long tradition of economic research. Just a couple of examples: we've conducted the National Longitudinal Surveys of Youth for the Bureau of Labor Statistics. We've done that since the '70s, still in the field following how people's education, jobs, and earnings unfold over their lives. We do any number of other economic studies, but one of our most far-reaching studies is the Survey of Consumer Finances, which we've conducted for the Federal Reserve Board since 1992. And I think many of you know it's a key source of data on household income, assets, debt, and it is widely used by the Federal Reserve Board through the system, researchers, and policymakers nationwide and others.

We also have a deep commitment to Chicago. One example of that commitment is the creation of Chicago Speaks, which provides neighborhood-level data on what Chicagoans think about just about everything, and it fits nicely into today's conversation. And I'd also just like to acknowledge that some of the funders of the work we do on behalf of the city are here in this room today. And I really appreciate your shared commitment to our city. So let's talk about the economy and how people experience it. I think it's natural to expect that when measures of economic activity indicate the economy is strong, that we expect people will feel good about it. Of course, we know that's not always the case. And the reason, of course, is that measures of economic activity and measures of consumer sentiment are related and measure similar things, but they measure different things. Economic activity measures, of course, tell us what's happening with things like employment, wages, spending, inflation, often called hard data by economists. But they don't always tell us how the conditions are experienced in people's daily lives. Consumer sentiment measures, on the other hand, help fill that gap, capturing how people experience economic conditions, how confident they feel about the future, and how those perceptions can shape the decisions they make, thereby influencing the hard economic measures. And it is confusing when people's experience of the economy doesn't match the hard data. One might conclude that none of it makes sense. What is often concluded is that the consumers must be wrong. And forgive me, Steve, but the economists are the first often to do that. I think more often both types of measures offer valuable and complementary insights. So today we're going to examine this. We're going to look at — Steve already went through some of these questions, but I'll do it again with just maybe a couple more. What causes consumer sentiment to move ahead of, alongside, or behind measures of economic activity? This is this notion of leading indicators and lagging indicators and the fact that actually consumer sentiment can be both. What aspects of lived experience might traditional measures miss? What can we learn when we look at the two types of measures together? Because as is usually the case with data, the sum is greater than the whole of its parts. When you put them together, you get really useful insights. So, we're fortunate today to explore these topics with a really wonderful group of economists, researchers, and community and business leaders, and a truly wonderful moderator. We'll look not just at what the data say. We will discuss what this means for people's lives. So, Steve, I'll turn it back over to you to introduce our moderator.

Dan, thank you for that. It is now my pleasure to introduce our moderator, a name that will be well known to many of you, I'm sure, and that is Kyla Scanland. Kyla is a highly regarded economic commentator and writer. She's a contributor to CNN and to the New York Times and the founder of Kyla Labs. She writes about money and markets and the systems that shape them for an audience of over 1 million people across TikTok and Instagram, Substack and YouTube. She's especially known for bringing a human-centric approach to complex questions, which you can see on those multiple platforms in her writings. You can also see it in the book that she recently published called "In This Economy: How Money and Markets Really Work," which was a New York Times bestseller. Fitting for us today, Kyla is also known for coining the term "vibe session." Anybody know vibe session? You might have heard of that. To describe the disconnect between economic data, as Dan was citing, and some of the hard data and negative public sentiment. Kyla was named to Barron's 100 Most Influential Women in US Finance, also the Time 100 Creators list. She's currently a senior fellow at the Vanderbilt Policy Accelerator and a research fellow at the American Institute of Boys and Men. We're delighted to have her with us. So, please join me in welcoming Kyla Scanland to the podium. [applause]

Hi everybody. I'm so excited to moderate these panels today. I think this is such an important topic and thank you to Steve and thank you to the Chicago Fed and to NORC and to NORC at the University of Chicago for inviting me and for convening all of us today. So, a few years ago, I did come up with this word vibe session, which has stuck around far longer than I thought it would. And during that time, I was monitoring my comments on social media because I make videos on social media. And I was talking about GDP growth being really strong. The labor market was getting back to normal. This was 2022. And the comments were like, "You are crazy. This economy is not good. I feel really, really bad." And I was like, "What is happening?" And so since then, we've noticed this gap between sentiment and economic data. And today we're going to talk about why that gap exists and what we can do to fix it. So I'm so excited to hear from our three experts — or five experts rather, sorry. Joanne Shu of the University of Michigan will give us a glimpse into current consumer sentiment and recent trends. Scott Brave of the Chicago Fed will track the relationship between consumer sentiment data and other economic statistics and how that relationship seems to have broken down in recent years. And Brian Fabes of NORC will offer local consumer insights from the Chicago Speaks survey and offer some hypotheses — does anybody know how to say that word? — for why consumer sentiment is near historic lows even as other economic data looks comparatively better. But right now, I'm going to be joined by Rick Estrada and Keith Rostin. Rick Estrada is the president and CEO of Metropolitan Family Services, the largest and oldest nonprofit human services provider in the Chicago area. And Keith Rostine is a group vice president of data analytics and enterprise capabilities at Meijer, the Michigan-based supercenter retailer with more than 500 locations across much of the Midwest. And it is my mother's favorite grocery store. So, please join me in welcoming them to the stage. [applause]

All right. Hi, Rick and Keith.

Hi. Hi.

So, Rick, I want to start with you. You run one of the largest human services organizations in Chicago. What are the families that you're serving actually dealing with right now? And what's changed over the last year?

You know, Kyla, first of all, it's a pleasure to be here with you all and I think this is a really critical conversation. In preparation for this conversation, we went back into the minutes of our history and we looked at during the Great Recession and what the organization's leaders were speaking about at the time and it's similar to what we're speaking about today with our board and our leadership at Metropolitan Family Services and how we describe the needs of the people that we serve. So, like you said, we were founded 169 years ago. So we have a little bit of history that we can draw back on. And so what was common then that is common today is that there was this anxiety that our clients felt as they saw their neighbors in long food lines. And I think for us today — and there were many other things that were said there — but for us today we're experiencing, our clients are experiencing like a combination of factors: the cuts in their health care, cuts in supplementary nutritional assistance, cuts in mental health, an increasing number of hours being having to put in work in the gig economy. Housing costs are going up. So then they hear the news that the economy is doing well and it's resilient and all of the things that you just mentioned that people just mentioned, that there's cognitive dissonance and that I think that adds to this insecurity that they have about their space in our present economy.

Keith, what are you seeing? Sorry. Keith, what are you seeing? You're dealing with shoppers. What are they putting into their carts or not putting into their carts that they were two years ago?

Yeah. I think if you get into the mind of the consumer from a couple years ago, you know, you were coming out of a couple years of COVID and a new normal and some of the highest inflations that most of us and certainly many of our consumers ever faced in their life. And so back in 2024, I think you saw this change of behavior that I'd call coping, right? They were coping with higher prices. You're making choices around pack sizes or private label and own brand versus national brand choices and really making those trade-offs to make that dollar stretch across this new normal or what they were hoping wasn't the new normal and that prices would come back down, right? And so fast forward two years to where we are today and the coping has really turned into routine. And so that value-seeking activity that started — it's always been there to some extent, value has always been important — but that really started coming out of that high inflationary time period really has turned into the routine for the customer. They're constantly looking for the value that they can get on their shop to make that dollar stretch further. And it really impacts for our business which during COVID, you know, deemed essential versus non-essential. You're looking at things discretionary versus non-discretionary. We're fortunate enough to have those things to trade off with each other across the portfolio of things that we sell. But that consumer continues to escalate their choices around things like pack size, private label, how they get that dollar to stretch as far as they possibly can.

Keith, what are you seeing with the people that you serve? How are they dealing with this unsustainability of the current economy?

Or sorry, Rick. Sorry, sorry.

You're good. Like, okay, so one more time, what am I seeing? What —

So essentially there is, as you were talking about, there's this cognitive dissonance, right? So people are being told a narrative about the economy that it's strong, that it's performing really well, but when they go grocery shopping or when they try to get access to services, maybe it's not as accessible. There's something unsustainable within this. So how are you seeing people respond to that sense of unsustainability and uncertainty?

Well, what we're seeing specifically is that it hits them in the face as soon as they walk out the door because most people are still driving to work and they drive to the gas station or drive past the gas station and they see the increase in the gas that they know. You know, I think when this all started, the increase in prices of oil and fuel, they thought it was temporary. And now that it has sustained, that's the first thing that they see and it reminds them that everything else in their life is more expensive.

And when they get to work, if they work somewhere outside the house, because many of them again are having to rely on the gig economy to have multiple jobs, then there's additional pressures there. And I think, you know, it seems to them — and this is something we've been gathering from surveys that we do of our clients — that they feel that this economy is focused on the employers that they are required to put in different kinds of hours with no regard for what that does to their family and the needed support that they're going to have to provide through extended family members or additional child care. And so again, it adds to this level of what is my future going to be like and the insecurity they feel.

And Keith, we are dealing with this level of uncertainty across the broad economy. We're talking a little bit about gas prices and at Meijer, you're dealing with both high diesel prices and high gas prices. So how are you seeing that impact the consumer or that double squeeze?

Yeah, I mean the diesel prices on the inbound side, you know, we see them right away, right? We see them before the goods ever hit the shelf. And we have to continue to look at things that we may not have been as focused on, whether it be optimizing inbound, optimizing outbound. We'll always do it to some extent, but the real dollars of inefficiency start to show up and magnify, right? And so we're doing that on the internal side, right? On the external side, we're also in the fuel business. And to Rick's point, you know, fuel shows up in the economy before any numbers do and often before a paycheck does, right? And I think that's really profound, right? Because it then drives what the consumer can spend or how much they can save or how much credit they're going to be using for the rest of that week, that month, whatever their pay cycle is, because it's really the first thing that comes out. And you see that across the portfolio of products, right? Again, getting back to the mix of discretionary versus non-discretionary, but in the world that we have here, particularly across our footprint, but you could extend it across the entire country, fuel is non-discretionary, right? I need it in order to make my ends meet because it enables me to do that.

And let me allow me to add one more thing. So, as if so, I look in this room, I bet that every single one of us has had this thought: I'm not sure how the working class, those people make it on that income. When you think about the people that we serve, the nearly 200,000 people that we serve on a yearly basis, whose average income is less than $20,000 a year, I bet every single one of us has had that thought. How do these people survive? And again, that is again the question that we need to continue to grapple with and that no economic report can help rationalize that says that everything is relatively stable and the leading indicators are good. They can't rationalize that. There's the cognitive dissonance again.

Yeah. When we had our pre-call, you were talking about the loss of health care services for some of the people that you serve. How is that impacting the decisions that they're having to make, the trade-offs that they're facing now?

Yeah, loss of health care and loss of food benefits. So far, I did a little quick Google check because on July 1st, 170,000 people had lost their SNAP benefits. And then today, just if you kind of AI it, it says 450,000 people in the state of Illinois have lost their supplementary food assistance benefits. You add to that the fact that they've lost their health care and it's again, it's unsustainable. We're going to see a level of mental health issues that are coming our way and that we don't have the safety net to deal with.

Yeah. And Keith, in our pre-call, you were talking about sort of it just shows how big the economy is, the impact of GLP-1s on Meijer, if you know, just looking at these two sides of the coin. What are GLP-1s doing to the decisions that consumers are making within the store?

Yeah, there's two big factors around GLP-1 from our perspective. One, you have a structural change in demand, right? It's not decreasing demand in itself, right? It may be changing caloric intake, right? But we actually have the proof that, you know, when a consumer starts on a GLP-1, the spend outside of GLP-1s continues to go up, right? There are other things that they surround themselves with, whether it's a taste profile or a certain kind of product that we then have to think about how we merchandise to that. But it is real dollars that has become a non-discretionary purchase for that individual. And when you look at that, right, it changes the mix again of what they're spending. And you think about, you know, the cost to feed my family or to maintain my standard of living. If that becomes an additional cost, I'm going to make sacrifices across the rest of that basket of goods in order to meet the needs of my overall wallet that I have.

Well, we're going to get a little bit more into the data from our great presenters. Rick and Keith, thank you so much for sharing those insights. You're going to stay with me on stage. We're going to sit here, but we do want to hear from the researchers. Now, Keith and Rick talked about what people are doing and Joanne Shu runs one of the largest or longest running measures of how people are feeling at the University of Michigan. She is the director of the University of Michigan Surveys of Consumers. The Michigan Survey is one of the longest running and widely cited measures of consumer sentiment. Please join me in welcoming Joanne to the podium. [applause]

Thank you so much for having me. So what I want to start with is a little bit of a level set on how consumer sentiment has been evolving in recent years. So here is a chart on the left going all the way back to 1946 when we began the survey to the present and on the right side a bit of a zoom in starting with the pandemic. So sentiment really started to take a nose dive as inflation started coming up post-pandemic. It improved in 2024 and what I think a lot of people forget is that after the election, sentiment actually bumped up, so it was on the upswing at the end of 2024, beginning of 2025. However, soon after that, amid the extremely escalated tariff announcements that were coming out, sentiment plunged again through April and May. And then after that, 16 months on, sentiment continues to be quite unfavorable.

In the summer of 2025, so just over a year ago, we saw a modest improvement in sentiment as tariff developments started to calm and the worst-case scenarios that a lot of consumers were bracing for and a lot of economists actually at that time were bracing for didn't quite come to fruition. In the fall of 2025, it went down again as labor markets were seen to be weakening and inflation was continuing to be stubborn and of course we had that record-long government shutdown. As that shutdown resolved in the winter of 2025, so leading into 2026, sentiment increased again. You know, overall unfavorable, but consumers were perceiving some relief from negative factors. So, we were having some upward momentum in sentiment at the beginning of this calendar year, but of course, 2026 has been dominated by gas prices and the Iran conflict. Consumers have been very worried all year that there's potential pass-through of these higher gas and fuel prices passing through to the broader economy.

Now, I want to be completely clear that the trends are not being driven by one end of the political spectrum or the other. The national statistics that we put out are consistently and fully aligned with the trends seen by independents. So you can throw out all the partisans and you can get the exact same results. And on top of that, over the last 19 months or so since the last inauguration, the biggest drops in sentiment and expectations have actually been among Republicans. So we see this across the political spectrum. And this loss among Republicans is largely happening in 2026. They didn't react as much to the tariffs, but they've reacted much more strongly to the Iran conflict and the gas prices there. So for the rest of my time, I'd like to talk about why is sentiment so low when a lot of economic indicators might suggest otherwise. And to preview, really different data are designed and intended to capture different things and so we shouldn't be that surprised when different indicators tell us something slightly different. And as an example, for a lot of economic data that we consume and that are published by the government, it's $1, one vote, and I'll say a little bit more about what that means later, whereas when it comes to sentiment, it's one person, one vote. So, why is sentiment so low when inflation is lower than it was at the height in 2022? Well, this chart shows the percent of consumers who are spontaneously telling us on the survey that high prices are weighing down their personal finances. And post-pandemic views have been just dominated by worries about cost of living. And these factors have been weighing on consumers even as realized inflation and inflation expectations for that matter — what consumers believe inflation is going to do — as those have softened. So I want to look back at history to the Great Inflation, the '60s, '70s, and '80s. These spontaneous references to high prices rose and fell with each inflationary episode. However, post-pandemic, even as inflation has fallen, these high-price mentions have remained stubbornly high. So this is something that's new that started happening after the pandemic. The black line there is CPI inflation and I'll just point out that different households face different inflation rates. This is well documented in research and on top of that, the CPI basket, the weights on each individual good is based on total spending of urban households. So that means that basket is going to be tilted towards the spending of wealthier, higher-income consumers. So why is sentiment so low when inflation is currently lower? Well, there's been widespread persistent concern about tariffs. This chart shows the spontaneous mentions of tariffs on our survey. We didn't have tariff-specific questions. This is the share of people just bringing it up on their own and it is impossible to get people to agree about anything. So it is really interesting that we had no mentions about tariffs before the election and then we had this massive surge. And on top of just mentioning tariffs, it was clear that consumers were worried that it was going to pass through to labor markets, business conditions, and inflation longer term. Then there was a downward trend as those developments slowed but we've seen a tick up with a re-escalation of trade tensions just in the last few months. Now, while those tariff worries have declined, they've been offset this year with a sharp increase in gas price concerns in the blue bars. Before the Iran conflict, we didn't have that many gas mentions, but the ones that were mentioned were a mix of positive and negative mentions. People recognized — there were people who recognized that gas prices were lower in 2024, 2025 than they were at the beginning of the Russian invasion of Ukraine. But as soon as the Iran conflict began, all the gas comments are uniformly negative. Now I want to move on to the stock market. Stock markets are hitting record highs constantly. But the reason why that doesn't pass through to consumer sentiment nationally is because only consumers with larger portfolios are going to see any benefit from a roaring stock market. So this chart shows the different trends for sentiment among the wealthiest consumers with the largest stock portfolios compared against the blue line, which is consumers with no stocks at all. And so what you see is they converged last year amid the height of the tariff announcements. But after that, sentiment for the wealthiest recovered or started to recover at least, whereas for the least wealthy, their sentiment has continued to decline over this period. And this is actually pretty similar to what we saw in the post-pandemic period where we saw this huge wedge start to emerge after inflation started slowing down after reaching its height in 2022. So this is where I think it's really important to point out that actually what we're seeing here is consistent with robust or stable consumer spending. The lion's share of consumer spending is generated by wealthier consumers. Wealthier consumers have much higher sentiment than non-wealthy consumers. Again, sentiment is one person, one vote. Aggregate spending, $1, one vote. And those two things don't match up. A dollar per person does not match up. And this becomes even more clear when we look at the percent of consumers who are telling us that high prices are dragging down their personal finances. Here the top tile, the wealthiest consumers are in dark green and the other three groups are in gray. And the reason they're all the same color is those other three groups look exactly the same. Whereas the wealthiest consumers have consistently fewer worries about high prices. In 2023, you know, they started out right after the pandemic with similar complaints about high prices with the 2022 inflation. In 2023, these concerns declined, but only for the wealthiest consumers. In 2025, 2026, again, everyone's now moving in lockstep. Everyone's even more worried than they were before. And so the sizable wealth gap remains. Again, this is consistent with aggregate spending being strong because the wealthiest consumers who are generating most of consumer spending have the least worries about prices.

All right, we're going to skip this one. So, another factor I want to bring up is the news, the information environment. So, this is a chart here that plots the share of people telling us that they heard unfavorable news about prices. So we have this going all the way back decades to the great inflationary period. So I'll point out that the 2020s peak of this, almost 40% of consumers spontaneously are telling us, "I'm hearing negative news about prices and inflation." And this is almost twice as high as what we were seeing in the great inflation peak when inflation was objectively much higher. There were lines around the block for gas. It was a very different and more disruptive situation. [snorts] When I talk to my colleagues who study communications, they point to the evolution of the media environment. In the '60s, '70s, and '80s, people had kind of a shared understanding of what was going on in this country. They were watching the same evening news, reading the same morning paper, talking about the same set of — coming from the same set of shared information at the water cooler. In the 1990s that completely changed with the introduction of cable news which turned things into a 24-hour news cycle and depending on what channel you watched you might be seeing very different information and this gets amplified again in the 2010s with the introduction of algorithmic news media which bifurcates the information sets people have even more. You know, depending on what your algorithm is predicting on what you're going to click on, it's going to be the most emotionally aggravating type of information to generate clicks. But it's not necessarily even the same aggravating information coming from different populations. So to wrap up, confidence in the economy is very negative. But it's not really any mystery why cost of living is the number one concern. And despite slowing inflation, the cost of living has not come down. I think one of the main things that we learned from the survey is that there's a lot of variation across the population. And so sentiment surveys capture a lot of new information and color that's just not going to be visible in national statistics at all. Thank you. [applause]

Thank you, Joanne. That was very illuminating. You have sat down, so thank you for doing that. Scott Brave is going to join us next. He is a senior economist and economic adviser at the Federal Reserve Bank of Chicago. Please join me in welcoming Scott to the stage. [applause]

Thank you, Kyla, and thank you to the organizers for inviting me to speak today. It kind of sounds like I'm going to play the role of defending the evil economists today. So, let me do my best to do so. So, I want to take a step back a little bit here. So, Joanne gave you a very deep dive into the University of Michigan data and I want to talk big-picture items. So, the talk today, I want to talk about three stylized facts. So, three facts about consumer sentiment since 2019 from the evil economist point of view. So, let's start. The first point, which Joanne already made very clear, consumer sentiment has broadly declined and that's true if you look at other measures beyond just the University of Michigan measure. You can look at the Conference Board, you can look at all other alternative measures. It's broadly declined and it's remained low. So we know that's a feature of the data and that's something that economists have to struggle with because the other side of —

That is, if you look at the things historically that helped us predict what consumer sentiment was going to be — various economic fundamentals — they now less accurately predict consumer sentiment. So something has definitely changed there. And then furthermore, the really important point for someone like me who's a forecaster who uses consumer sentiment to track what consumers are spending on and what their expectations for future spending is going to be: we now know that consumer sentiment also now less accurately predicts consumer spending growth post-COVID. So those are all very important facts, and I want to decompose them one by one. So to start with the first one, this is the vibe session. This is your vibe session. I'll quibble a little bit with the language there. I don't think it's necessarily vibes or session, but I love the terminology when put together. This vibe session notion that we have consumer sentiment that has declined and remained low — it's broadly shared, and you can see this actually in a new composite index that we constructed here at the Chicago Fed that we started publishing, I think, over the summer, a few months back. Whether you look at Michigan, whether you look at Conference Board, any of these new measures that are out there that are very high frequency, you're going to see the same pattern. Look at the levels prior to the pandemic, look at the levels after the pandemic. On average, they're about 20 points lower. And this index here is actually benchmarked. It's in the same units as the Michigan index. So you can think of this as sort of a drop of 20 points in the Michigan number. There's essentially a missing recovery in consumer sentiment after 2019. This is not what we normally see during a recovery period following a recession. So this is something we have to understand, and even the evil economists want to understand this. I can promise you that. They want to understand where this is coming from and what we can learn from this. So let's start with fact number two. This fact that sentiment actually began to diverge from economic fundamentals is something that we've noticed for quite some time. We actually put out a study in early 2023 that was looking at this. Prior to the pandemic, for a really a period of about 25 years, you could really accurately predict sentiment measures by just looking at a very small number of economic indicators. Most of these were measures of the labor market, the stock markets, all the kinds of things that Joanne just did a rundown of. Those things were very predictive of sentiment. Something happened after the pandemic, and those measures just now all of a sudden were not as predictive. That was true in 2023. It's still true today, actually. And when we kind of did our statistical analysis — I'm a statistician, econometrician by trade, so I kind of like to live in that world — but when we look at all these data series and we did our statistical analysis, what we found was very clearly there were three culprits, and you can classify them really as all labor market driven. We were not seeing the boost from the decline in unemployment and the low level of unemployment that we had seen in the past. We were not seeing the boost to sentiment from gains in real disposable personal income as inflation came down. Those seem to be features of the data that others have picked up on and really developed theories for why we might not expect that to be the case this time. And many of them really actually align with the things that Joanne just talked about. In fact, the affordability issue is really, really key. So what's really going on here? Consumers not reacting to the labor market in the same way — these improvements, the sort of the recovery phase of the cycle. There's a couple reasons why that might make a lot of sense. The first is, as Joanne pointed out, that the movements we saw in inflation out of the pandemic were much bigger than that previous 25 years. You have to go back to the '70s or '80s. It's really sort of a regime change notion there. The other aspect of this, though, that I think is omitted from that conversation is the labor market prior to the pandemic was actually rather strong. Unemployment was quite low, and real disposable personal income was growing at a quite solid rate. So the reference point for most people when they look at pre- and post-pandemic — the pre-pandemic was actually a rather strong economy. And so there's some shifting reference point issue that could potentially be affecting the average level there as well. But the other aspect of that is really the behavioral response that people have in this kind of environment. And there's actually been a lot of research on this. So this notion of lived experience and how consumers express what they're seeing in the labor market and inflation — that's been quite developed over the last several years. There's a couple academic papers I listed here, but the basic notion is inflation causes consumers to do things that they don't really want to do. It causes them to take costly actions. And one of those things in the labor market is you have to negotiate a higher wage, or you might need to change jobs to pursue a higher wage. And so those real disposable personal income gains, they come at a cost. And so that tends to be reflected in the consumer sentiment data. So the big point I want you to take away from this change is really the sentiment data may be capturing more than just the business cycle or typical economic growth. It is certainly capturing cost of living considerations, as Joanne mentioned, and a lot of economists and a lot of commentators have noted this. It's affordability is kind of the name that it goes under. Prices did not come down, particularly for salient consumer goods. So consumers are looking for prices to come down. In many cases, that's not been the case. Inflation has come down, but it's still elevated compared to where we were pre-pandemic. And several authors have noted this. And if you kind of repeat the study that we did in 2023 by throwing in some of those extra factors, you can explain some of this missing recovery.

But the implication of this at the moment for someone like me that's trying to understand what consumers are expecting and what they're planning to do going forward is we've seen a decoupling between consumer spending growth and sentiment. So this may be where I slightly disagree with some of the comments. Spending growth has certainly been disconnected. It's been quite a bit stronger than sentiment. Prior to the pandemic, the correlation between these measures was actually very strong, and that was kind of the basis of the statistical relationship that forecasters used to predict future spending. That changed right when the pandemic hit. We've seen some improvement since the pandemic, but it's not really fully recovered. And this is true whether you look at traditional measures like the Michigan measure or the Conference Board. It's true when you look at more recently developed measures that try to bring in sentiment from social media or traditional media, other ways of kind of getting at how consumers are feeling beyond just surveys. It's all there. It's in all of them. And so this is something you kind of have to wrestle with going forward. It raises the obvious question: is sentiment still a reliable real-time indicator for a policy maker trying to understand what's happening with the consumer? And I want to say it is, but I think it's also a situation where you need to take a very holistic view of this data, right? So it might not be necessarily as good an indicator at the moment for consumer spending. It is still telling you something, and it seems to be telling you a lot perhaps about cost of living and inflation. There's more that goes into those survey responses than just consumer spending plans. So we have to take that into account. The other thing that's worth noting is this is not actually a new development. It's often been the case in the past that the consumer spending data for periods of time, sometimes long periods of time, has not predicted consumer spending as well as it has at other times. There are other real-time measures that we can use to compensate for that and really kind of broaden out what consumer sentiment is telling us. And they've often outperformed sentiment for long periods of time. So it's important to keep in mind that you can't just look at one measure. You really do — I agree with the comments that were made — you have to really look at everything in totality, take a very holistic view of it. The other aspect that I would stress is sort of: if you really want to use it as a leading indicator, you really need to look at it broadly, even across measures of sentiment. And that's something that we found in recent work that we published. If you look at our composite measure, which brings in some of these traditional survey-based measures with newer sort of media-driven or high-frequency survey-driven indicators as well, they don't all tell the same story. They have subtleties to them about how the data is collected, what it's measuring, how the questions are asked, and there are advantages and disadvantages to all of those. Combining all that and taking a holistic view, you actually get a signal from these measures that is a little bit more predictive for consumer spending. So that's something that we found in our research recently. So that's the message I sort of want to leave with everyone today: if we're going to look at this data, we definitely need to keep in mind the bigger picture. It should be a holistic view. Sorry. It should be a view that includes lived experience. It should be a view that includes all the economic analysis and statistical analysis. But you really have to bring it all together to truly understand what this data is telling you. So I'll leave it with that. Thank you.

All right, thank you so much, Scott. We're going to welcome our final presenter to the stage, Brian Fabes, the senior fellow at NORC at the University of Chicago and co-director of Chicago Speaks, who will connect the what with the why, especially relative to Chicago.

Thanks, Kyla. It's so fun to be here with this panel. We have lots to talk about, but for my next nine minutes or so, I want to try to do two things. The first is I want to directly address, in my way, the question that brings us here today: why do economists and consumers see different economies? And the second thing I want to do is to bring insights from Chicago Speaks, which Dan mentioned briefly — the probability-based survey panel of more than 3,000 Chicagoans that we built at NORC. We built Chicago Speaks because we wanted to hear on a regular basis from all Chicagoans, including in particular those who are often left behind, the last or least heard. The hard data generated by the high-quality surveys like Chicago Speaks — I said hard data. These are hard data. They're sentiment data. They're hard data. They give us insights into the lived experience of residents, and they add richness to our understanding of today's questions that sometimes the macro numbers can miss. And as everyone has said, it's important to bring both these perspectives together. So let's start with the puzzle that we've talked about for a good part of the day. The macro numbers look good. I won't repeat them. Spending looks good, and no one is happy. Okay. Why is this? The easiest thing to do is dismiss the sentiment data. Now, I will not accuse only the economists of doing that for whom this is not convenient. It is the first thing to do. Number one, we can say it's partisan. As Joanne has covered, pessimism is quite bipartisan today. We can blame the media and exposure to social media. And there's probably some truth to that. As we've discussed, we've seen in Chicago Speaks, for instance, when we ask about gun violence: Chicagoans who look at more social media about gun violence report a belief that the city is more violent than those who look at less social media. Now, what's interesting is that effect is much greater when asking them about neighborhoods outside their own. The effect is less when asking about their own neighborhood. And if you think about consumer finances, people know pretty well whether or not they can pay their own bills. Families know their own finances. So, yeah, maybe a little. And then finally, of course, it's the vibes economy. I guess I would say anyone who believes that it's just people don't feel good, they don't know how good they have it, and they'll just need to feel better — go home tonight, tell your spouse who's mad at you about something that they should just feel differently, and see where that gets you. So, when millions of people say something isn't right, let's figure out what it is. I think there are four things driving this, and we've covered some of them. Number one is people live in levels, not rates. So inflation is a rate. People don't live in the rate. They don't buy with inflation. They buy with dollars. And as Rick said, every time they see a gas station, they know what the price level is. I don't want to belabor that point. But I do want to say that we see this not just in prices, but for instance in stability and confidence in keeping your job. Unemployment rate is low, yet people feel very vulnerable to losing their jobs — more vulnerable than you might think. We've asked Chicagoans in every iteration of Chicago Speaks how worried they are about losing their job, and roughly 20 to 25% are highly worried or very worried they're going to lose their job, even though the unemployment rate is low. I think when Rick talked about cognitive dissonance leading to insecurity, this is insecurity. So reason number one: people live in levels, not rates. Reason number two, again, we've touched on this a little bit: averages hide the distribution. So here, the top line for asset owners — the S&P 500 growth, real growth, inflation-adjusted over the last five years. Bottom line: real median wages, inflation-adjusted. Now, remember, assets aren't just something to spend on. Assets give families protection, buffers from financial shocks, allow families to invest in the future. And if you don't have those, you don't have that buffer. You don't have that security. How many don't have that buffer? According to a recent Fed survey, about a quarter of adults in this country would have to borrow or sell something to cover a $400 emergency. Another 13% couldn't cover it at all. That's a lot of stress. Now, for the median wage earners, this line may look flat. It actually goes up about 2% over the last five years. But that's the optimistic view because this deflates wages by CPI. And as Joanne just said, for the median wage earner, most of your money is going to food, gas, housing — things that are inflating greater than CPI. So in fact, you're underwater by four to six percent, depending on how you do the calculation. All right. The averages hide the distribution.

Third reason. I'm sorry, I wanted to add one piece here. So that's the average and distribution. This is what it looks like on the ground. Okay, if you ask Chicagoans how you're doing, 6% say they're thriving financially. 6%. More than half say they're just getting by or finding it difficult to get by. And what does that really mean to lived experience? Lived experience: more than a third cannot pay their bills every month. That's the lived experience of the average hiding the distribution. One out of three not paying their bills every month. All right. Now, let me go to the third reason, which is that politics isn't just theater. National events land locally. Last fall, a little bit after Operation Midway Blitz started, we asked Chicagoans how aggressive immigration enforcement was affecting them. There are many effects. One of the strongest effects was 69% said aggressive federal immigration enforcement hurt their local economy and businesses. After the government shutdown, 11% of Chicagoans said they were furloughed, had hours cut, or worked unpaid as a result of the shutdown. And that's not evenly distributed. For Black Chicagoans, that number is double — about 20%. So these things that we sometimes say it's just theater — that has an economic effect on people's lives. Then finally, the fourth reason, and I think this might be in a way the most significant, is that no one has faith anyone's going to fix it. We've been asking about trust in institutions two years in a row now in Chicago Speaks, and what we find is that the trust is low across institutions, and in particular it's low in the federal government, in businesses, in local CEOs, and those institutions that we hope would fix these problems. For institutions that are a little closer — your own employer or local nonprofits — trust is higher. And we have some indication that trust is actually increasing slightly for nonprofit organizations. Those are the ones that are out there on the streets helping people, doing immigration enforcement, and people had a really strong connection to. But overall, this is not a good picture for confidence. And when people don't believe anyone will fix something, worry hardens into pessimism. So why do consumers keep spending if we have all these problems? And I think we've covered part of this. I think absolutely aggregate spending is driven very much by high earners. Depending on the source, between a quarter and a half of spending is driven by the top 10% of earners. Keith talked about the stretching and coping of the middle who are always looking for value. But then I think if you look at everyone else, spending isn't actually a choice. You can't not buy food. You can't not buy housing — although people are increasingly not able to buy housing. And so without savings to fall back on, the evidence suggests people are beginning to put off paying bills. We already saw that. And beginning to turn to credit. Buy now, pay later has risen to $160 billion, according to the Fed last year, about double what it was in 2023. And the Financial Health Network says that the share of households reporting unmanageable levels of debt rose 31% last year. Finally, we asked Chicagoans how many of you in fact have to borrow to pay emergency or everyday expenses, and about 20% — about one in five of Chicagoans making up to $100,000 — have applied for a small-dollar loan for basic needs or emergencies in the past year. That's a lot of people struggling to get by. So, let me summarize. People don't feel good. That feeling is reality. Let's deal with it. Why? People live in levels, not rates. The aggregate hides the distribution. Federal actions aren't helping. And consumers don't believe anyone's going to fix it. I think that's big. Why do they keep spending? Well, those who can are spending a lot. Other people look for value, and others have no choice. To add a conjecture to all of this, thinking about it another way: Wall Street and Main Street are living in two vastly different worlds today that seem increasingly incompatible. It's not just about income inequality, though, which people talk about. It's about the precariousness of life on the wrong side of median wage. And I will say, unless Wall Street figures out how to grow businesses in ways that they can bring Main Street up with it, Main Street has a high risk of bringing Wall Street down with it. Thank you.

All right. Now we have a 15-minute discussion with our panelists, and I'm first going to start with Keith and Rick and ask you for any immediate takeaways from the presentations. Rick, do you want to go first?

Yeah, I'll give it my best shot here. As I was kind of listening to these, one — I always like to begin with stories. And I was probably poor from the moment I was born till about the age of 22. I didn't realize I was poor until I was a freshman in college and started seeing all the data about income, and I'm like — I came to the realization somewhere in the middle of sociology class, oh, we're poor. And so, but I never thought I was poor, right? I never in my mind thought that our family was poor or lower income. And so the vibes matter. And so then as you move through the lifespan of a human being, I guess now I would be in the 35% survey block Brian showed, where I am living comfortably, but in my mind I'm middle class. And so again, the two kind of things — vibes, these vibes matter. And so that's my initial thoughts about that. You know, I started with this idea around what was routine — what was coping has become routine, right? And when you get into that routine, it's really hard to change. And what I react to when I see the persistence of the sentiment data, right, is how hard it is to change the routine of the way the consumer feels right now, right? Or not even consumer — I speak of that from a retail term — but the way our Chicagoans or the way our country feels today. And that is going to be hard to break. I find it interesting when we talk about hard versus soft metrics. We don't really talk about that in business. We talk qualitative and quantitative, right? It's all hard metrics. It's all correlated, and we're constantly looking for the causation, but it's all important, right? And when the hard numbers or the quantitative side is performing really well, right, then we focus on the qualitative side and how do we deliver a better experience because that will serve us better when the quantitative doesn't. And so, you know, I'd love to be an audience member here looking at this. I probably think about it a little bit differently than sitting up on stage, but I think it does open a perspective to make sure that we're looking at all those different metrics.

Yeah. Joanne, I found your point about how the economy is composed of individuals that then get summarized in averages and medians. How do you think that we should talk about averages and medians when the economy truly is composed of individuals who have these vastly different experiences within it?

So averages and medians are very, very useful. We can't have a conversation about every single percentile, every single type of person in the economy. So as a summary measure, I think they're incredibly useful, particularly as shorthand. But I think when we have these discussions, we should be very explicit, or have this explicit understanding, that it is obscuring all of the distributional stuff that's happening under the hood. And so when we talk about the top-line economic indicators being strong, I really don't see it in conflict at all with the lived experience of a lot of people because these distributional issues are so important. You know, we can't necessarily substitute — you know, we can't have a fully distributional version of GDP growth, as an example. But I think that's why, you know, I completely agree with Scott that it really makes sense to be looking at a suite of data. And I think any policy maker, any forecaster worth their salt is going to be looking at a suite of data.

Yeah, Scott, that's one of the things that you advocate for is looking at a wide swath of data. How do you recommend doing that?

Yes. I feel like sometimes we get a little bit too focused, hyper-focused on one number. So it's always what's the latest number, right? It's sort of you get stuck in the economic news cycle, and you really tend to hyper-focus on that latest number. With something like sentiment, as it comes out, it's very real-time. We get a very early reading on it. It's very kind of intuitive for that to dominate the news. But there are other high-frequency real-time indicators that tell you about the health of the consumer. And I feel like you should be using those together, right? We can measure spending very quickly now using credit and debit card data, other metrics. We actually do a lot of that here at the Chicago Fed. You know, combining that with sentiment gives you just a better, fuller picture of what's going on. Just to give you an example, we have an index that we construct here. It's called our CARTS index. It measures retail sales at a weekly basis. And sentiment is a part of that index. We use a sentiment index to help us predict that weekly pattern of retail sales. But it's not the only measure. There are other things in there, and that really helps us make sure that we're making decisions that are robust, that we're not just hyper-sensitive to that number that's coming out on a daily basis.

I also found this conversation around the stock market perhaps helping some people feel better, driving spending. Brian, you highlighted that in your presentation alongside Joanne. How stable do you think an economy is when it's held up by higher spenders in this way, if that's what you believe?

Not very. I mean, I think this is why you see populism. This is why you see extremism on both sides of the political spectrum. And again, I think it's not just where we are with such a bifurcated economy. It's the lack of trust that it's going to be fixed. And you know, that ultimately brings into question the legitimacy of the whole system. And that's what I worry about. Like, you have to have legitimacy in the system and institutions to bring it back into balance.

And Rick, as Brian pointed out in his presentation, trust in all institutions except for nonprofits has fallen. You run a nonprofit. Why do you think that people are still trusting in nonprofits relative to the other institutions out there?

Well, I think it's because we are a translator for some of the data, and we're a translator of services. And finally, we are proximate to people. And people come to us sometimes in their time of greatest need, whether it's housing assistance, support for their medical illness, or a moment in their life where they experienced violence. That's when they come to us, and a variety of other reasons. And we're there. We're present. We're proximate. And while we can't solve everybody's problems, they know that they can come to us, the entire sector, and that we will do our best to try to find a solution.

Joanne, you were talking about how consumers are seeing negative news on social media. As somebody who makes social media videos, I'm very aware that the algorithm certainly rewards negativity. What role do you think the online world plays in informing the current sentiment that we have?

So, one thing I didn't mention when I was at the podium is that I'm not drawing a causal relationship here, because people who are most interested in stories about inflation, who are most worried about inflation, they're going to click on every single link they see about inflation. And so that feeds directly into the algorithm. I think we see a bit of evidence of this in 2009, in the chart that I showed on the negative news that spiked during the Great Recession a couple of years before. And I think many of us would be hard-pressed to think of inflation as the characteristic feature of the Great Recession, the global financial crisis. And yet that was something that was really prominent on people's thinking at that time, and that coincides with the onset of cable news. So I don't think actually this is a new phenomenon. And also, when it comes to this shift in sentiment after the pandemic and its predictive power — I mean, there are a lot of economic relationships that have kind of been broken after the pandemic, right? Like the yield curve inversion as a predictor of recession completely failed after the pandemic. You know, the Sahm rule was not giving — was not accurately assessing — was giving a false positive on recession. So let's not all pin it all on the consumer. This is something that's a little bit mysterious, or something that has regime-changed perhaps after the pandemic. And so this information environment is not really changing, right? Like we're in this environment. I think it's in some ways a fantastic opportunity, like for the work you do to share more about how the economy works with the public. But it's also a risk, because there are going to be swaths of the population who will never see your videos and who are going to be seeing some other source of information that might be talking about a completely different reality.

Yeah, Brian, you mentioned that too, where people think neighborhoods outside of theirs are much more dangerous. We see this within the economy too. People feel great about their personal finances and terrible about the national economy. Do you think that's just everything is okay around me but bad outside? What do you think is causing that big divergence?