Cautious confidence

US consumer sentiment climbed to a five-month high in January, jumping 3.5 points from December—the biggest monthly gain since June and well ahead of economists’ expectations.

So, Americans are feeling pretty good about their finances in the new year, right? Right?

“However, national sentiment remains more than 20% below a year ago, as consumers continue to report pressures on their purchasing power stemming from high prices and the prospect of weakening labor markets,” said Joanne Hsu, director of the survey, in a statement from the University of Michigan.

Not so fast

On the surface, the data fit a broader run of upbeat signals suggesting the US economy is healthy. The stock market seems to be doing well, too: 79% of the S&P 500 companies that have reported earnings through last week have beaten analysts’ EPS expectations, according to FactSet.

But corporate commentary tells a more cautious story.

According to Bloomberg, airlines are already seeing signs of cracks, with management at Delta and United warning of lower travel demand due to geopolitical uncertainty and global tensions. US military action in Venezuela has already had a “measurable negative impact” on Caribbean travel, according to United, a slowdown that proposed credit card interest caps could further aggravate.

Consumer caution is also showing up across both staples and industrials. Management teams at Procter & Gamble and McCormick both noted that shoppers are still pulling back. Executives at 3M, Fastenal, and JB Hunt Transport Services flagged ongoing demand softness, with 3M shares posting their steepest drop since April earlier this week amid concerns over potential tariff-related earnings pressure.

Running on reserves

Zooming out, policy uncertainty looms as the dominant risk for both markets and the economy, and that risk is amplified by weak income growth. Inflation-adjusted spending climbed 2.6% in November, driven largely by wealthier households riding market gains, while disposable income rose just 1%, the slowest annual pace since 2022, and the savings rate fell to a three-year low.

With spending outpacing income and savings dwindling, companies’ caution may be warranted. If consumers start tapping savings while geopolitical and policy risks rise, demand may prove far less durable than sentiment suggests.

How’s that for good news?—SY