Despite record-low sentiment, consumer spending has been artificially propped up by tax refunds and cuts. This financial cushion is now gone, leaving consumers to face high prices without support. This suggests a pullback in spending is imminent as the disconnect between sentiment and behavior resolves.

Economists focus on the slowing rate of inflation, but consumers are anchored to pre-COVID price levels. The fact that goods still cost significantly more is the primary driver of negative sentiment. This "anchoring effect" means that even with decelerating inflation, consumer frustration persists because their purchasing power feels permanently diminished.

Unlike 2022, when stimulus savings allowed consumers to absorb price hikes, the financially depleted middle class now lacks the ability to pay more. This forces them to push back on price increases, creating significant consumer resistance that acts as a powerful, albeit painful, check on a new round of inflation from tariffs or other cost pressures.

Instead of fueling a spending surge, this year's larger tax refunds helped consumers absorb the shock of high inflation, particularly in gas prices. This temporary cushion has propped up spending, but the underlying consumer is stretched, as seen in rising delinquencies.

Unlike the 1970s oil crisis, today's energy shocks cause demand destruction because consumers are weaker. In the 70s, people had decades of real wage growth. Today, after decades of wage stagnation, consumers have no financial cushion, forcing them to cut spending immediately when prices rise.

Contrary to popular belief, the U.S. consumer shows weakness. Nominal goods consumption is up only 3.5% over the last year, and real spending is below 2%. This indicates that price inflation is primarily driven by supply shocks, not strong demand, challenging the narrative of a resilient consumer.

According to the Conference Board survey, the percentage of consumers planning a vacation (38.7%) has dropped to its lowest level in over 45 years, outside of periods during or immediately after a recession. This sharp decline in discretionary service spending is a significant red flag for the domestic travel and tourism industry.

The vacation rental market is bifurcated. Affluent consumers, less sensitive to interest rates and more influenced by financial market performance, sustain strong demand for luxury properties. Meanwhile, the middle of the market softens as rate hikes make both homeownership and expensive rentals less accessible for middle-class consumers.

When facing prolonged high gas prices, consumers initially absorb costs by reducing savings or using credit. However, as the shock persists, they are forced to cut back. The primary target for these cuts is discretionary spending, specifically durable goods, as households postpone large purchases due to economic uncertainty.