Despite their feelings about the economy, consumers keep on spending

Retailers started the fall shopping season looking pretty darn decent. After a slump in August, September retail sales numbers rose 0.4%, more than economists expected. If you take out sales of cars and trucks, which were flat, and gasoline sales — which fell because of a drop in prices — retail sales were up an even stronger 0.7%.

So, what gives? Surveys of consumer sentiments suggest people are feeling pretty meh right now about the economy and their personal finances. And the uncertainty swirling around the election isn’t helping.

The September retail data is one of the last government reports on consumer activity we’ll get before the November election. 

“Consumers are still spending, and that bodes well for the economy as a whole,” said Mickey Chadha, an analyst at Moody’s Ratings.

Now, there is a big contradiction in this continued retail spending rally.

“For the past two years, we’ve seen pretty strong consumer spending in spite of the fact consumer sentiment has been below average,” said Joanne Hsu, director of the University of Michigan Consumer surveys.

She said the reason spending is doing well is incomes have been very strong. But now, there’s another factor coming into play: “People are incorporating their election expectations into their economic views,” Hsu said.

Uncertainty about future economic conditions is increasing.

Polling firm Ipsos, meanwhile, finds that half of consumers are planning to spend less and save more in the run-up to Election Day, said Ipsos Senior Vice President Chris Jackson.

“Consumers kind of holding their breath, pulling back a little bit, not necessarily being as willing to take risks or big spending,” he said.

Lately, the economic news has been pretty good — inflation down, job market strong, stock market up. 

But, Jackson said, consumers take that news in or don’t — largely based on their partisan affiliation. 

“We asked people: Is it true or false that the stock market is at or near all-time highs?'” Jackson said of a poll Ipsos just released. Only about 40% said it was true.

“And that connects almost directly to how people view the election. People who know that the stock market is at or near all-time highs are overwhelmingly supporting [Vice President Kamala] Harris. And people who do not think that are overwhelmingly supporting [former President Donald] Trump,” Jackson said.

This summer, the University of Michigan survey found that as Kamala Harris rose in the polls, sentiment among Democrats improved, while Republicans got more bummed out about the economy. 

As the polls tightened, that gap diminished.