The government shutdown has clearly caused anxiety for people on food stamps and government workers who aren't being paid. But job fears are also mounting, which is raising concerns about consumer fundamentals. The problem with interpreting what this means more broadly is that there is no such thing as a 'typical' US consumer anymore.

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Confidence continues to slide

The November reading of the University of Michigan sentiment index has deteriorated further, dropping to 50.3 from 53.6 relative to a consensus prediction of 53.0. The expectations component dropped 1.3 points to 49, while the current conditions series fell 6.3 points to 52.3 - an all-time low for the monthly series - and this goes back to the 1970s! This is likely due to government shutdown concerns tied to SNAP food payments and ongoing non-payment of wages.

Near-term inflation expectations (1Y ahead) ticked up to 4.7% from 4.6%, suggesting anxiety about the potential for tariffs to lift prices, while the 5-10Y ahead inflation expectations dropped back to 3.6% from 3.9% - that’s still pretty elevated though relative to a long-term average of 2.5-3%.

The real concern, though, is regarding the jobs market. 71% of households now expect unemployment to rise over the coming 12M while only 9% expect unemployment to fall. That gives a net reading of 62% predicting higher unemployment versus 52% last month. A huge increase, which, as the chart below shows, has historically been the prelude to an ugly outcome for jobs.

UoM unemployment expectations versus private payrolls growth (1978-2025)

Source: Macrobond

The narrative here is that workers know when there is a hiring freeze, they know when there is cost containment, and they get nervous that Bob and Sally have just been let go and don’t believe the company line of “don’t worry, this won’t be the start of more job losses”. People have seen this play out before and are concerned that more announcements, such as seen in yesterday’s Challenger Report lay-off figures, are on their way.

Risks skewed towards a spending slowdown

The problem with directly interpreting what this means for the economy is that there isn’t a “typical” US consumer. We talk about bifurcation, where the top 20% by income, who account for more than 40% of all spending, remain in great shape. Inflation is an irritation rather than a constraint on spending, incomes are high, and there is a sense of job security, while they hold significant housing and equity wealth that has risen strongly.

The bottom 60% of households by income are feeling more pain. They tend to spend more of their pay on physical goods, which are vulnerable to tariffs – hence concern about squeezed spending power. They are arguably more vulnerable to technological changes in the economy and to firms trimming costs. Data suggests the bottom 60% of households only hold around 15% of the wealth, so they haven’t benefitted from surging asset prices to the same extent.

UoM consumer expectations versus consumer spending growth (QoQ% annualised) 1970-2025

Source: Macrobond, ING

Right now, that top 20% of households by income are keeping the show on the road, and that may well continue, but the relationship between sentiment and spending has been historically quite good, with the chart above suggesting the risks are skewed towards weakness ahead. As such, this reaffirms our view that the Fed will end up continuing to cut rates and why we still favour a December rate cut.

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