After months of downbeat sentiment, U.S. consumers are breathing a collective sigh of relief. In May 2025, consumer confidence increased by over 12 points following a five-year low the month before. This surge reflects more than a simple shift in mood—it signals renewed belief in household finances, job prospects, and the broader economy. As wage growth gains momentum and labor markets remain robust, families are feeling more secure about their current and future economic well-being.

A statistical turnaround in confidence

The Conference Board’s Consumer Confidence Index jumped from a disheartening April figure to 93.5 in May, up more than a full dozen points. Although the expectations index still sits below the critical 80 threshold that often foretells recession risk, its rapid rise indicates shifting sentiment. Meanwhile, the University of Michigan’s Consumer Sentiment Index, revised to 60.7 in June, stood well above May’s 52.2 reading.

These gains were driven by consumers’ improved assessments of both their current financial situation and their outlook for the next six months. After months of declining optimism, these indicators demonstrate that household finances are stabilizing and expectations are realigning with broader economic trends.

The crucial role of wage growth

Wage dynamics have been central to this confidence rebound. Since 2023, nominal wage growth has been strong, even as labor markets gradually balance and inflation cools. Over the past year, real wages have outpaced inflation by 0.9%, delivering meaningful gains for lower-wage workers in particular.

Survey data show that 18.0% of consumers expected their incomes to rise in May, up from 15.9% in April, while only 13.8% feared a decline. Add to this personal income growth of 0.8% in April—boosted by a 7% Social Security increase—and it’s clear why households are feeling more financially resilient.

Labor market strength and household incomes

The U.S. unemployment rate held at a modest 4.1% as of September 2024, below the 21st-century average. Job openings and hirings remain steady, reflected in consumer surveys where 19.2% of respondents expected more jobs to be available, up sharply from 13.9% the previous month.

Across OECD countries, the U.S. labor share of income has climbed above pre-pandemic levels in roughly one-third of nations monitored. This resurgence helps explain why more Americans are reporting improved household purchasing power overall.

Inflation trends and policy impacts

Inflation has eased from the heights of 2021–2023. The April 2025 core PCE price index was up 2.52% year-over-year, with headline inflation at just 2.15%. These moderated rates have alleviated some pricing pressure for essential goods and services.

Moreover, macroeconomic and policy shifts have bolstered consumer sentiment:

• A U.S.–China tariff reduction agreement, easing trade concerns and price spikes
• Strong household wealth growth—about $50 trillion since early 2020—driven by housing and equity markets
• Targeted Social Security increases and stable fiscal policy measures

Persistent concerns and consumer caution

Despite these positives, many Americans remain wary. Roughly half of consumers still cite rising prices as a key concern. Younger generations, particularly Gen Z, report dipping into savings and delaying major purchases due to affordability worries.

Survey respondents indicate that the cost of goods and services outweighs fears of job loss. In fact, just over a third express mixed feelings about the economy, reflecting a cautious stance born of pandemic-era uncertainty and uneven recovery experiences.

Practical steps for households

To harness this improving sentiment, households can take several practical actions:

1. Review and adjust personal budgets to account for real wage gains and expected price changes.
2. Build or replenish an emergency fund equivalent to three months of essential expenses.
3. Consider debt repayment—particularly high-interest balances—to lock in improved financial stability.

By aligning spending and saving strategies with the evolving economic landscape, families can turn optimism into tangible financial resilience.

Looking ahead: risks and opportunities

Consumer spending intentions for homes, automobiles, and major appliances have strengthened, indicating potential for robust economic growth in H2 2025. Yet risks remain. Year-ahead inflation expectations in some surveys still hover near 6.5%, sowing caution among cost-sensitive consumers.

Global uncertainties—from geopolitical tensions to supply chain disruptions—could also temper the rebound. A balanced approach that recognizes both the opportunities and the lingering headwinds will be key to sustaining momentum.

History shows that consumer confidence can be both a driver and a reflection of broader economic health. As wages continue to rise and inflation stabilizes, households have a unique opportunity to reinforce their financial foundations.

With thoughtful budgeting, strategic debt management, and a measured approach to major purchases, American consumers can transform renewed confidence into lasting prosperity. The next several months will be critical: sustained wage growth, stable prices, and steady job markets will determine whether this rebound takes firm hold or simply marks a temporary uptick.

For now, the narrative is one of cautious optimism. By staying informed, proactive, and realistic about future challenges, families can navigate the evolving economic landscape with confidence and purpose.