Welcome back to our blog! Today, we're diving into a fascinating conversation from the "Meet Me for Coffee" podcast, Episode 49, hosted by Samantha Jones, featuring financial journalist Phil Rosen, founder of Opening Bell Daily.... They tackled a hot topic: the puzzling gap between how consumers feel about the economy and what the actual economic data is showing.
Phil Rosen, a former senior reporter at Business Insider who covered markets and economic data, now runs his own independent financial media company. He writes a daily newsletter, Opening Bell Daily, that covers markets, stocks, finance, economic data, and the Federal Reserve, aiming to offer a unique perspective.... Samantha highlights the growth and value of independent journalism in providing dynamic layers to the media landscape....
Samantha noted that consumer sentiment data has been "really, really bad lately". Phil elaborated on this, mentioning recent consumer surveys showing that "everyone expects a recession to come". He pointed specifically to the Michigan consumer sentiment index, which was down about 32% from a year ago, and the economic expectations index, down 30% since the start of the year – one of the worst drops ever seen on that survey. Investor sentiment surveys also showed "bears" winning, indicating negativity towards the stock market.
However, Phil pointed out that these surveys have become "less and less reliable as economic indicators" over the last few years. He highlighted a Federal Reserve study released in April which found that when looking at sentiment surveys tied to actual retail spending, there is "very little connection there compared to years past". Essentially, there's a "massive gap" between how consumers feel and what their spending habits suggest.... Phil attributes some of this sentiment dive to it becoming a "partisan survey," noting a partisan divide in the data since the start of the Biden administration.
Despite the gloomy sentiment, the "hard data" presents a different picture.
• Consumer Spending is Resilient: Americans "continue to spend and they're spending more than pre-pandemic," even though they say they feel broke and expect the economy to worsen. "Their behavior says otherwise".
• Inflation is Decreasing: Phil noted that CPI inflation came in at 2.3% annually for the previous month, and inflation has dropped "every single month this year". Samantha agreed, noting that while some inflation might be "sticky," overall, it hasn't been notably increasing, and by many measures, it's decreasing.... Prices are accelerating slower than in recent history, perhaps since pre-pandemic times.
• The Labor Market is Strong: Monthly job growth has "not fallen off a cliff" and the labor market is "more resilient than people expected" this year....
This real economic data suggests the economy is "not going into a recession at least today," which clashes hard with the sentiment surveys.
One area where the data does show weakness is manufacturing. Samantha brought up Phil's article citing a Dallas Fed Reserve release on Texas manufacturing, showing "a lot of weakness in domestic manufacturing markets" this year. The Dallas Fed survey included comments from manufacturing leaders calling for the Fed to cut rates due to tight business conditions.
Phil, while not a manufacturing expert, noted that because this is the Fed's own survey, they are likely paying attention to it, unlike perhaps the Michigan consumer sentiment survey. The Dallas Fed survey indicated falling shipping numbers, decreased general business activity, and a huge jump in uncertainty among manufacturing executives. These findings provide "color" for the Fed's decisions, though Phil doesn't anticipate the Fed weighing manufacturing as heavily as inflation or the jobs market.
The Federal Reserve is in a difficult position. Its structure is "backwards looking," relying on past data to make decisions. This puts monetary policy at odds with the public, news, and investors who are trying to look at the future. The word "uncertainty" is being used frequently in quarterly earnings releases, highlighting the challenging environment. Phil observes that the Fed, based on his observations, is unwilling to take the risk of acting too soon and is sticking to its historical approach of looking at available data.
Tariffs are described as a "wild card" and a source of significant uncertainty.... Phil notes that the reordering of global trade being attempted hasn't really been seen in modern history, leading to volatility because investors don't know how to position for it....
A key development discussed was the recent US-China trade deal, which served as a 90-day pause on tariffs.... Samantha suggested that progress on the tariff front might help "smooth some emotions" and provide stimulus or optimism, similar to calls for rate cuts.
Phil highlighted the immediate market reaction: the stock market "absolutely skyrocketed" to open on the Monday following the news. The S&P 500 even became positive for the year, which he called "ridiculous" given the recent "doomer headlines".... He believes investors reacted strongly not necessarily because they cheer tariffs, but because they gained "a glimpse of daylight as far as clarity" on what's coming next. This certainty, which markets had been "starved for," provided a "clearer path forward as far as what to expect for investors".
Samantha questioned if markets were also "starved for some sort of opportunity" after a period without significant dips. Phil mentioned that reporting indicated retail investors "piled into the dip" in recent months, being net buyers while institutions were selling. He referenced Warren Buffett's advice that the "price of being in the market is the volatility," the "tuition you pay". Long-term returns in US capital markets have been extraordinary, and short-term thinking driven by unpredictable events like tariff uncertainty or a president's style is not a justified reason to abandon markets, as historically, no single president has had such a radical long-term impact on capital markets....
While the stock market reflects optimism, the bond market, which some "markets folks" see as a better indicator of the economy than the stock market, tells a different story. Phil notes that bond yields "remain fairly elevated," which "reflects essentially economic uncertainty". He explains that "smart money still don't know where the economy is going". Even though the stock market is "way more optimistic," bond yields are not moving much, indicating that the economic uncertainty reflected in bonds is "not being reflected by pessimism in the other".... The White House has stated its focus on lowering Treasury yields to lower borrowing costs across the economy, which connects to calls for the Fed to cut rates27....
Addressing concerns about recession risks, Phil discussed how firms like Goldman Sachs have recently raised and then lowered their recession outlooks based on developments like the China trade deal.... He finds these recession predictions from Wall Street firms "kind of useless in the long term" because they fluctuate so much based on short-term headlines and the firm making the call, lacking "predictive power".
Based on his discussions with various market participants, economists, and strategists, Phil says "no one has been super bearish on the economy" recently. The general sentiment is an expectation of "a lot of near-term volatility, uncertainty," but the "long-term sort of bullish outlook remains intact".
The discussion also touched on audience questions. Regarding the 90-day tariff pause and its effect on freight volumes, Samantha noted preliminary data shows a "surge in bookings." However, this is leading to a "capacity crunch" as container ship lines had reduced capacity by adding "blankings" (cancelled voyages) to manage supply and demand and prevent rates from falling too low. She also questioned if shippers might face penalties for cancelling bookings if circumstances change. Certain industries like pharmaceuticals and computers saw significant increases in imports previously and are expected to continue taking advantage of the pause.
On whether high consumer spending reflects a habit of overconsumption, Phil acknowledged that Americans are "prone to overconsume" and that the economy is built on consumer spending. Samantha added that certain sectors, perhaps those heavily impacted by tariffs, might see shifts in consumption patterns, and lower-income classes are most susceptible to tariff increases. Consumers might shift brand preferences (e.g., from name brand to store brand) to save money, but overall consumption volume might remain similar.
The conversation underscored a key theme: while consumer sentiment is overwhelmingly negative and predicts a recession, the underlying economic data related to spending, inflation, and the labor market is holding up surprisingly well.... Manufacturing shows weakness, and the Fed faces the challenge of navigating uncertainty with backward-looking data.... Tariffs introduce significant volatility but the recent pause has offered a glimmer of clarity for investors.... The stock market is optimistic, reacting strongly to positive news, while the bond market remains cautious, signaling continued uncertainty.... Despite fluctuating recession odds from forecasters, the long-term outlook among many experts remains bullish....
For more insights on markets, economics, and financial data, including charts and analysis, you can find Phil Rosen's work at Opening Bell Daily, which publishes a free flagship newsletter every morning.... You can also find him on Bloomberg terminals and active on LinkedIn3. Samantha highly recommends subscribing for digestible newsletters with valuable information applicable to understanding broader markets, including for those in supply chain and logistics.