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What this video’s about:

In this episode of The Market Share, Paul Gifford, Chief Investment Officer at 1st Source, joins Matt Noll, Senior Portfolio Manager, to explore the relationship between consumer confidence and market behavior. They explore how sentiment aligns with actual spending, how household debt has evolved since the pandemic, and why consumer behavior remains a cornerstone of the U.S. economy.

Understanding Consumer Confidence

Consumer confidence is considered a “soft” economic indicator—it reflects how people feel about their financial outlook. As Matt explains, when confidence is high, consumers are more inclined to make significant purchases, such as homes or vehicles. When confidence wanes, spending tends to slow.

Looking at a 35-year trend, Matt notes a consistent pattern: while income levels may affect how quickly people respond to economic changes, overall sentiment tends to move in the same direction across income brackets. “Over time, you may see higher-income households leading spending on the way up and providing a bit of a buffer on the way down,” he explains.

Confidence vs. Reality: What the Hard Data Shows

Emotions don’t always align with behavior. While consumer confidence can decline sharply, actual spending—a “hard” data point—has steadily increased over the decades. Long-term data shows a consistent upward trend in consumer expenditures, even during periods of low confidence.

“So just because we feel bad doesn’t mean we’re putting the checkbook away,” Paul remarks. This disconnect is crucial for investors to understand: while sentiment can drive short-term market movements, long-term trends are more reliably shaped by actual spending behavior.

Household Debt: Resilience in a Changing Economy

Household debt is another key indicator of consumer health. The COVID-19 pandemic marked a turning point, as many households refinanced mortgages at historically low interest rates and benefited from stimulus payments, improving their financial flexibility.

“The household debt situation has changed significantly over the past decade,” Matt observes. Unlike the 2008–2009 financial crisis—when rising adjustable-rate mortgages strained many families—today’s households are generally in a stronger position due to lower interest burdens.

Even amid rising rates and market volatility, current debt-to-income ratios suggest that many consumers still have capacity to spend.

Why the Consumer Still Matters

“Consumers account for roughly 70% of U.S. economic activity,” Paul reminds viewers. Understanding how they feel, spend, and manage debt is essential to gauging economic momentum. While headlines may focus on market swings or interest rate changes, consumer resilience continues to be a powerful stabilizing force.

Conclusion

Despite fluctuations in sentiment, the American consumer remains a driving force in the economy. With steady spending and improved financial health, households continue to support economic growth in meaningful ways.

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