Ann Arbor Times

Americans are not just choosing gifts this holiday season; they are also predicting the economic outlook. The University of Michigan’s Surveys of Consumers, under the guidance of economist Joanne Hsu, provides insights into how consumer sentiment affects holiday spending and broader economic trends.

With over 75 years of data, the index is a reliable economic indicator, showing that perceptions about the economy often influence its path. This year, during a presidential transition, consumer sentiment highlights a partisan divide: Republicans express newfound optimism while Democrats show increasing concerns. Independents remain cautiously neutral. For retailers, these changing sentiments can significantly affect holiday spending patterns.

Hsu notes an interesting trend in the rush to buy durable goods such as appliances, electronics, and vehicles. However, this is not necessarily a sign of confidence. A record 25% of consumers act out of fear that prices will rise further in the coming year. While this behavior might boost short-term holiday sales, it highlights broader economic uncertainty.

Consumer spending drives nearly 70% of the U.S. economy and is deeply influenced by expectations about future conditions. Understanding these sentiments during the holiday season offers valuable insights into potential economic trends.

“Consumer sentiment isn’t arbitrary—it reflects how people perceive the economy now and in the future,” Hsu said. “When consumers are optimistic, they’re more likely to spend, fueling growth. But if they’re worried about a downturn, they hold back, affecting the broader economy. This makes sentiment a critical predictor of economic performance.”