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Planet Money

The Consumer Sentiment vs. Consumer Spending Puzzle

with Dieran Patkey, Peter Atwater

Published November 21, 2025
View Show Notes

About This Episode

The episode explores why U.S. consumer spending remains strong despite very low consumer sentiment and several economic headwinds like high interest rates, inflation, and tariffs. Using detailed credit card data, economist Dieran Patkey shows that high-income households are driving much of the growth in spending, effectively propping up the economy. Economist Peter Atwater argues that this creates a top-heavy, "K-shaped" economy and a fragile, illusionary sense of broad prosperity that is vulnerable to shocks in financial markets.

Topics Covered

Consumerism Behavioral economics Wealth inequality Investing Risk and uncertainty Data-driven decision-making Consumer sentiment Credit card debt K-shaped recovery Stock market concentration

Disclaimer: We provide independent summaries of podcasts and are not affiliated with or endorsed in any way by any podcast or creator. All podcast names and content are the property of their respective owners. The views and opinions expressed within the podcasts belong solely to the original hosts and guests and do not reflect the views or positions of Summapod.

Quick Takeaways

  • Consumer sentiment has fallen to near half-century lows, yet consumer spending remains surprisingly strong, creating an unusual divergence between how people feel and how much is being spent.
  • Standard surveys of consumer sentiment and expenditures have limitations, but detailed credit card data reveal that high-income households account for a disproportionate and rapidly growing share of consumer spending.
  • The top 20% of earners are responsible for more than half of credit card spending in the examined data, and their spending has grown about 86% over a decade (inflation-adjusted), compared with about 50% for low-income households.
  • Because wealthy households are insulated from inflation, high interest rates, and tariffs, their spending can continue even when these forces strain lower-income consumers.
  • This dynamic creates a top-heavy "Jenga tower" or "K-shaped" economy, where prosperity is concentrated among a relatively small, affluent group while many others fall behind.
  • The apparent strength of the economy is increasingly dependent on financial markets and a small set of major stocks, which makes it vulnerable to a stock market shock that could sharply curtail high-income spending.
  • Companies are reorienting toward high-income customers, for example through premium airline cabins and luxury cars, while lower-income consumers face rising defaults and repossessions.
  • Headline economic indicators like aggregate consumer spending can mask deep distributional differences and growing fragility beneath the surface.

Podcast Notes

Introduction: The puzzle of strong consumer spending despite low sentiment

Current state of consumer sentiment

Consumer sentiment is near its lowest point in half a century[0:29]
• Americans, on average, are not optimistic about the health of the economy, their jobs, or their personal finances
Typical relationship between sentiment and spending[0:51]
• When consumers feel pessimistic, they usually save more and reduce spending, which shows up clearly in historical data
• Consumer spending and consumer sentiment usually move together and are described as "buddies" that go everywhere together

The emerging divergence between sentiment and spending

Hosts describe a "rift" between sentiment and spending[0:55]
• Consumer sentiment is portrayed as sad and inactive, while consumer spending is depicted as going out and spending heavily, like being out at the club all night
Economist reaction to the divergence[1:21]
• Economist Dieran Patkey from the Boston Fed says the main reaction is bafflement at seeing two significant economic barometers move in discordant ways
• He notes that when key measures diverge, it naturally raises the question of why

Questioning what strong spending really means for economic health

Consumer spending's role in the economy[2:19]
• Consumer spending includes groceries, dining out, entertainment, big-ticket items like cars, and services like plane tickets
• Consumer spending accounts for more than two-thirds of U.S. economic activity, about 70% of GDP
Central question of the episode[1:40]
• If consumer spending is strong, it usually signals a healthy economy, but the hosts ask whether that is still true in the current situation
• The show sets up the question of whether consumer spending might be distorting our view of the economy given the current divergence from sentiment

Surveys as key data sources and their limitations

Overview of survey-based measures

Consumer sentiment and expenditure surveys are based on asking people[3:57]
• Surveys capture how people feel about the economy and their recent purchases, forming the basis for measures of sentiment and spending
Dieran Patkey's attitude toward surveys[4:12]
• He describes himself as "extremely compliant" with surveys because he uses survey data in his work and always participates when selected
• He notes he has never actually been selected for the major consumer surveys, but would be happy to participate if called

Specific consumer surveys discussed

Consumer Sentiment Survey and Consumer Expenditure Survey[4:57]
• The episode highlights two main surveys: the Consumer Sentiment Survey and the Consumer Expenditure Survey
• Both rely on people reporting their feelings and recalling their spending, which introduces potential flaws

Limitations and biases in survey data

Sentiment may not match actual behavior[5:10]
• People might report that they feel great about the economy but their actual spending behavior could tell a different story
Recall problems in expenditure surveys[5:14]
• The Consumer Expenditure Survey relies on people remembering what they spent money on, which works better for some consumers than others
• At the very high end of the income distribution, consumers may not report all their spending because it's hard to track or recall everything
• Examples include purchases like flights on a private jet, a yacht, or luxury items such as expensive throw blankets, which wealthier people may not think to report
Despite flaws, surveys show a clear mismatch[6:11]
• Even acknowledging imperfections, survey data still show a clear mismatch: declining consumer sentiment alongside strong consumer spending

Macro headwinds versus resilient consumer spending

Historical alignment before COVID and the COVID exception

Pre-COVID pattern of alignment[6:40]
• Before the COVID pandemic, consumer sentiment typically reflected consumer spending fairly well, moving in the same direction even if not identically
COVID as a major exception[6:43]
• During COVID, consumer sentiment was stressed, yet spending was supported by stimulus checks, creating a notable divergence between how people felt and how much they spent
• The hosts treat COVID as a special case and suggest the current divergence is happening in a different context

Current economic forces that should, in theory, dampen spending

High interest rates as a brake[7:21]
• High interest rates are described as Econ 101: they act as a brake on economic activity, typically reducing borrowing and spending
Inflation and tariffs adding pressure[7:31]
• Growing inflation means things cost more, creating hardship for consumers and normally slowing spending
• Tariffs have raised prices on many goods, and one would expect tariffs to slow overall spending as goods become more expensive
Stacked headwinds deepen the puzzle[8:02]
• When considering high interest rates, inflation, tariffs, and low sentiment together, one would qualitatively expect less strong consumer spending
• The fact that consumer spending remains resilient in the face of these combined headwinds adds to the puzzle economists are trying to solve

Using credit card data to understand who is spending

Shift from survey data to transaction data

Fed access to credit card data after Dodd-Frank[8:59]
• After the 2008 financial crisis, the Dodd-Frank Act required large banks to give the Federal Reserve access to credit card data to monitor lending
• This dataset covers about 80% of all credit card balances in the U.S. economy
Advantages of credit card transaction data[8:54]
• Credit card data do not require people to remember how much they spent; they are based on actual account-level records from banks
• For each anonymized cardholder, the Fed can see monthly spending, credit card debt balances, interest charges, and income at account opening

Scope and limits of credit card-based view of spending

Credit card data as a subset of total consumer spending[9:15]
• Consumer spending includes all outlays such as rent, bills, and transfers via services like Venmo, which often are not captured by credit card data
• Credit card transactions capture roughly half of all spending in the retail space, so they provide a meaningful but partial view of overall spending

Headline figure: monthly credit card spending in May

Total spending observed in the credit card data[9:48]
• In May of the referenced year, total spending in the Fed's credit card data was about $300 billion for that month

Income distribution of credit card spending and growth over time

Distribution of spending across income brackets

Lower-income versus higher-income monthly spending levels[10:04]
• For households with incomes between $0 and $39,000, monthly credit card spending in 2025 was around $26-27 billion
• For the highest income bracket, monthly credit card spending was about $175 billion, indicating a huge disparity
Share of total spending from top income group[9:48]
• Out of the $300 billion total in May, about $160-175 billion came from the very highest fifth of the income distribution
• More than half of total observed credit card spending came from the wealthiest 20% of Americans

Growth rates of spending by income level

Faster growth among high-income households[11:07]
• Dieran reports that the wealthiest consumers are spending 86% more than they were 10 years ago, even after adjusting for inflation
Slower growth among low-income households[11:07]
• Lowest-income consumers are spending about 50% more than they used to, which Dieran describes as a meaningful but smaller increase compared to the wealthy

Conclusion: high-income households are propping up spending

High-income consumers as drivers of aggregate growth[11:23]
• Dieran concludes that the wealthiest Americans are driving the growth in overall consumer spending
• He agrees it is fair to say that people at the top are a very significant component of current consumer spending and are helping keep the economy strong

Why macro headwinds hit differently across the income distribution

Insulation of wealthy households from key headwinds

Impact of inflation, tariffs, and interest rates on wealthy consumers[12:07]
• High interest rates, higher prices from tariffs, and inflation do not necessarily stop wealthy households from major spending, such as renovating kitchens or buying very expensive items
• The hosts give an example of someone paying $19.99 for a single strawberry imported from Japan as an illustration of this insulation

Recent favorable conditions for high-income households

Wage growth differences[12:54]
• In the current year discussed, wage growth has been strong for higher-income households, while wage growth has been slow for low-income households
• Paychecks are described as an important resource that supports consumer spending, reinforcing how income growth disparities affect spending capacity
Wealth effects from assets[13:09]
• Homes and stocks have become more valuable over the last five years, boosting wealth for households that own these assets
• These asset gains are likely to be much more important for supporting spending among households at the top of the income distribution
• Rising home values and a strong stock market give wealthier people confidence to spend more generously

Vulnerabilities in a top-heavy spending structure

Looking for "cracks" in the economy

Dieran's concern about vulnerabilities[13:53]
• Dieran says that if more consumer spending is supported by households at the top, shocks to their resources could have outsized effects on overall spending
• He notes this implies potential vulnerabilities or "cracks" that could form in the economy

Asymmetric effects of shocks across income groups

Shock to high-income households (e.g., stock market shock)[14:09]
• If a shock hits stock markets and reduces the resources of high-income households, it may significantly lower overall consumer spending because these households currently support a large share of it
Shock to low-income households (e.g., job losses)[14:49]
• If many lower-income people were to lose their jobs, it would be very bad for those individuals and make it harder for them to pay bills
• However, overall economic spending might still look strong because high-income households, who drive much of current spending, would be less directly affected in that scenario
Characterizing the economy as precarious[15:01]
• The hosts and Dieran suggest that this structure makes the economy vulnerable and "precarious" because of its dependence on top-end spending

Jenga tower analogy for the current economy

Introduction of the Jenga metaphor[15:32]
• Economics professor Peter Atwater from William & Mary describes the economy as a Jenga tower, specifically a top-heavy one
• He says all of the economic strength is at the very top of the tower
Illusion of broad prosperity[15:32]
• Atwater argues that this Jenga-tower economy creates an illusion of prosperity for all, even though only a small segment of the population truly benefits
• He warns that focusing on aggregate strength can deceive people about the real strength of the American economy today

K-shaped recovery and the bifurcated economy

Competing letter metaphors during the pandemic

Economists' "land grab for letters"[18:14]
• During the pandemic, economists predicted different shapes for the recovery: V-shaped, U-shaped, and L-shaped, each implying a different trajectory for decline and rebound
• Peter Atwater chose K as the best descriptor, in contrast to those other letters

Definition of a K-shaped economy

Top and bottom arms of the K[19:22]
• In a K-shaped economy, white-collar workers, investors, and those at the top make up the upward-moving top arm of the K
• These top groups experience conditions that are getting "better and better," like riding an upward escalator
• Those at the bottom form the lower arm of the K, falling further and further behind as conditions for them get worse
Notion of two simultaneous economic experiences[20:20]
• Peter describes the economy as bifurcated, with two different economic experiences existing at the same time for different groups

Visible signs of bifurcation: premium markets vs. financial strain

Examples of overabundance at the top

Airlines shifting revenue toward the front of the plane[19:43]
• Peter notes that Delta Airlines has said that next year, for the first time in its history, it will get more revenue from the front of the plane than from the back
Car market skewing toward luxury[20:48]
• Today there are twice as many car models costing over $100,000 as there are car models costing less than $30,000
• Peter says people driving used cars on the highway see this abundance of high-end vehicles daily
Psychological impact of visible inequality[20:45]
• The overabundance at the top is described as "incredibly visible and demoralizing" to those not sharing in it

Financial stress on lower-income consumers

Credit card dynamics[20:30]
• Companies are focusing investments and benefits on higher-income consumers, such as offering them richer credit card perks
• At the same time, low-income consumers are defaulting on their credit card debt at increasing rates
Auto market and defaults[21:33]
• The average price of a car is about $50,000
• Car loan defaults and repossessions are on the rise, signaling distress among more financially vulnerable consumers
Inequality is longstanding but currently amplified[22:00]
• Peter acknowledges that inequality and wealth gaps are not new phenomena
• What is distinct now, he says, is the added layer of a very strong-performing stock market that exacerbates the split between top and bottom

Dependence on financial markets and concentrated stocks

Markets as the economy for those at the top

Stock market's outsized role in top-end prosperity[22:04]
• Peter notes that people often say "the markets are not the economy," but for those at the top of the economy today, the markets effectively are the economy
• The perceived strength or health of the current economy is described as "incredibly dependent" on continued strong performance of financial markets

The Magnificent Seven and concentration risk

Growth driven by a small set of large companies[22:50]
• Recent stock market growth is said to be driven by a small group of companies referred to as the "Magnificent Seven"
• Peter names several of them: Amazon, Apple, Tesla, and Meta, describing them as giant tech companies tied to AI
Fragility created by overconfidence and concentration[23:13]
• Peter calls this dependence on a handful of stocks a "very fragile condition" for financial markets
• He says there is overconfidence among investors who believe markets only go up and that they will be continually rewarded
• He notes this belief has seemed true for a long period, but historically such patterns tend to change unexpectedly and violently

Potential trigger for the "Jenga tower" to fall

Link from markets to consumer spending vulnerability[23:57]
• If current consumer spending is driven by the rich, and the rich are spending because strong stock markets make them feel extra wealthy and confident, then a shock to the stock market could rapidly reduce their spending
• Peter suggests that such a market shock could be all it takes for the top-heavy "Jenga tower" economy to fall over

Outro, audience engagement, and credits

Listener feedback reference

Highlighting a previous Planet Money story[22:21]
• The hosts read a positive review from a listener who praised a Planet Money story about people working legitimate jobs from prison in Maine

Encouragement for ratings and reviews

Hosts request audience support[22:28]
• They explain that ratings and reviews help other people discover the show and ask listeners who like the program to leave a rating and review in their podcast app

Production credits

Acknowledging the production team[22:50]
• This episode was produced by James Need, edited by Meg Kramer, and fact-checked by Sierra Juarez
• Engineering was by Debbie Daughtry and Kwesi Lee, and Alex Goldmark is Planet Money's executive producer
Special thanks and sign-off[22:58]
• The hosts give special thanks to economist Thomas Ferguson
• Sarah Gonzalez and Kenny Malone sign off, and the episode ends with the NPR tag "This is NPR" and "Thanks for listening"

Lessons Learned

Actionable insights and wisdom you can apply to your business, career, and personal life.

1

Aggregate indicators like total consumer spending can mask who is actually driving the numbers, so effective analysis requires always asking how outcomes are distributed across different groups.

Reflection Questions:

  • • Which metrics in your own work or life might be hiding important distributional differences behind a single average or total?
  • • How could you break down one key performance indicator you track by segment, customer type, or income level to see a more accurate picture?
  • • What specific data cut or breakdown could you generate this week to reveal whether a small group is disproportionately driving your results?
2

Sentiment and behavior do not always move together, so decisions based solely on how people say they feel can be misleading without corroborating behavioral data.

Reflection Questions:

  • • Where are you currently relying on self-reported opinions or feelings without validating them against actual behavior or outcomes?
  • • How might combining survey-style feedback with real usage or transaction data change your interpretation of a current project or market?
  • • What is one process you could put in place this month to routinely compare what stakeholders say with what they actually do?
3

Systems that become heavily dependent on a narrow base of support-such as a small group of wealthy customers or a handful of stocks-are inherently fragile and vulnerable to targeted shocks.

Reflection Questions:

  • • In what areas of your business, career, or finances are you overly reliant on a small number of clients, products, or income sources?
  • • How could diversifying your revenue streams, customer base, or investments reduce the impact of a sudden shock to any one component?
  • • What concrete step could you take this quarter to lessen your dependence on your single biggest customer, employer, or asset class?
4

Wealth and asset gains can create overconfidence and the illusion that favorable trends will continue indefinitely, so it is important to plan for reversals even in seemingly boom times.

Reflection Questions:

  • • Where might recent successes have led you to assume that current positive trends will continue without interruption?
  • • How would your plans change if you explicitly modeled a sharp downturn or adverse scenario rather than extrapolating recent gains?
  • • What precautionary measure-such as building a buffer, reducing leverage, or stress-testing plans-could you implement in the next few weeks to prepare for a potential reversal?
5

Visible inequality and bifurcated outcomes can erode trust and morale, so leaders and institutions need to recognize not just overall performance but how fairly benefits and burdens are shared.

Reflection Questions:

  • • How might people in different positions within your organization or community be experiencing current conditions very differently from you?
  • • What steps could you take to ensure that new opportunities, rewards, or perks are not concentrated solely among those who are already most advantaged?
  • • What is one policy, practice, or communication change you could make this month to acknowledge and address disparities in how people are affected by current decisions?

Episode Summary - Notes by Riley

The Consumer Sentiment vs. Consumer Spending Puzzle
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