Consumer Confidence and Consumer Spending

A tale of two stories

by David McGrath 

For me, Memorial Day weekend is usually the kick-off of two things: summer and beach traffic trying to navigate around downtown Mobile. Most Thursday and Friday afternoons require a glance at the traffic map on my phone to avoid getting caught behind all our friends from Texas, Louisiana and Mississippi trying to get to Gulf Shores.

Consumer Confidence Hits a Historic Low

Friday of Memorial Day weekend this year (May 22) started at work with a very interesting economic release that garnered quite a bit of national attention: the University of Michigan Consumer Sentiment report. Since 1952, the University of Michigan has put out a monthly report asking American consumers how they feel about their personal financial condition. The April 2026 report produced a score of 48.9, the lowest score ever recorded.¹ The Memorial Day weekend release showed sentiment falling even further — to 44.8.

To provide some context, the lowest reading during the Great Recession of 2008 was 55.3, and the worst number of the COVID year was a 71.8 reading in April of 2020. In other words, by any historical measure, the report was ugly.

Why Consumers Feel So Pessimistic

Since the start of military action in Iran, rising gas prices have weighed on many Americans. According to the Federal Reserve’s report on Economic Well-Being from May 2024, approximately 37% of Americans said they could not comfortably handle an unexpected $400 emergency with cash or savings.² With gas prices rising close to 50% in the past few months, this last bout of higher prices seems to be finding its way into those weak consumer confidence numbers.³

After reading the report, I mentioned to a few colleagues in the office that at least the beach traffic should be lighter this year. If consumers were really all that worried, perhaps fewer people would be headed to Gulf Shores. Spoiler alert: They weren’t.

The Data Tells a Different Story

With our Oakworth office in downtown Mobile, I drove home headed west on Government Street. Like a thermometer, I gauge the amount of traffic by counting how many blocks of bumper-to-bumper traffic is trying to get through the Bankhead Tunnel. Well, that Friday the line of cars backed up well past Broad Street. Since I moved to Mobile in 1999, this was the longest wait to get through the tunnel that I can remember. How can consumer confidence be at the lowest point in at least 75 years but more people than ever were trying to get to the beach (with an 80% chance of rain every day that weekend)?⁴

One of the main reasons economists track consumer confidence is to gauge the health of the economy. It makes sense that “confident” consumers spend more money than consumers that lack confidence with their personal financial condition. It is not just on the Gulf Coast that consumers are continuing to spend. It’s everywhere. Average consumer spending appears to be accelerating, not declining.⁵

Corporate America Does Not Appear To Be Worried

The same pattern shows up well beyond beach towns and holiday travel. Businesses are seeing it, too. The following chart shows expected corporate earnings for the S&P 500, actual earnings for 2024 and 2025 and estimated earnings for this year and next year. Expected earnings for both 2026 and 2027 have accelerated significantly this year. We are now looking at 25% growth from 2025 to 2026 and an additional 16% growth in 2027.⁶ Much of the gains in earnings expectation have come since the start of the war in Iran on February 28.

The Disconnect

In the 31 years that I have been in the investment management business, I can’t remember a time we have had such a disconnect between how the average American feels about their own financial situation (according to the University of Michigan report), and the actual performance of corporate profits and the returns in the stock market.

A report from MarketWatch Guides in 2025 showed that 57% of Americans say they are living paycheck to paycheck. Combine this with a historically low unemployment rate of 4.3%, and many Americans with jobs still feel they are losing purchasing power after years of stubbornly high inflation. This will not show up in the personal spending data, as they still spend everything they bring home each month. Add in the spending power of the top 10% of households, which now controls around 49.2% of all personal spending, and you can start to see how consumer confidence and consumer spending intersect, and the disconnect becomes easier to understand. Consumers may feel worse, yet spending continues to rise.⁷

That is only personal spending. Corporate America is spending aggressively, as well. On June 2, CNBC reported that Alphabet, Microsoft, Meta and Amazon combined are expected to spend more than $700 billion on AI infrastructure in 2026 alone. This massive business investment, combined with resilient consumer spending, helps explain strong corporate earnings growth and stock prices that continue to reach all-time highs.

I believe this disconnect between consumer confidence and corporate earnings could continue. One of my favorite economic indicators isn’t published by the Federal Reserve or the University of Michigan. It’s the line of cars trying to get through the Bankhead Tunnel on a Friday afternoon. Right now, that gauge is telling me consumer spending is still robust and this economy is still in decent shape.

References

1. Trading Economics – United States Michigan Consumer Sentiment
2. FederalReserve.gov – Report on the Economic Well-Being of U.S. Households in 2024 – May 2025
3. MarketWatch – Gas prices could go even higher this summer due to this quiet shift in U.S. refineries. June 4, 2026
4. CBS News – U.S. Consumer Sentiment Is At the Lowest it has Ever Been, But What Is It? May 26, 2026
5. Bureau of Economic Analysis – Personal Income and Outlays, April 2026, Released on May 28, 2026
6. Goldman Sachs – The S&P 500 is Forecast to Climb as Earnings Growth Powers Stocks Higher, May 28, 2026
7. Bloomberg – Top 10% of Earners Drive a Growing Share of US Consumer Spending

Oakworth Capital Bank (OCB), Member FDIC, Equal Housing Lender, provides commercial and private banking, wealth management and advisory services. Advisory Services, including investment management and financial planning, are offered through Oakworth Asset Management LLC (OAM), a registered investment advisor. OAM is owned by OCB. Investment products and services offered via OAM are independent of the products and services offered by OCB and are not FDIC insured, may lose value, have no bank guarantee and are not insured by any federal or state government agency. Because of the ownership relationship and involvement by OAM associates with OCB, there exists a conflict of interest to the extent that either party recommends the services of the other. For additional information about OAM including its services and fees, visit adviserinfo.sec.gov. This communication is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. The views expressed are those of the author as of the publication date, are based on current data and are subject to change without notice. Certain statements may be forward-looking and involve risks and uncertainties; actual results may differ materially. Investing involves risk, including the possible loss of principal. Any estimates of future earnings, spending or market trends are based on assumptions and analyst projections that are inherently uncertain, and past performance is not indicative of future results. Information has been obtained from sources believed to be reliable, including third-party sources, but accuracy and completeness cannot be guaranteed. Economic conditions, market performance, corporate earnings, inflation, borrowing costs, geopolitical developments and consumer behavior may differ materially from expectations, and there is no guarantee that current trends will continue.

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David McGrath, CFA, is Oakworth Asset Management managing director, Chief Equity strategist and member of the Investment Strategy Committee Oakworth Capital Bank.