Introduction

For months, the dominant narrative about the U.S. economy has been comfortable: an  almost textbook soft landing, with inflation falling, the labor market still robust and stock markets at record highs. But, as so often, the twist in the story did not come from a Fed speech or GDP data, but from something much more prosaic: the mood of households. The Conference Board’s latest consumer confidence index didn’t just surprise to the downside; turned on all the warning lights about the piece that holds almost seven out of every ten dollars of the US GDP.

What seemed like a controlled journey to a soft landing is starting to look more like a flight in which the autopilot works, but the passengers are no longer so calm. And when the “silent hero” of the cycle — the consumer — shows fatigue, markets take note.

The data that set off the alarm: confidence at seven-month lows

On Tuesday, November 25, The Conference Board published its consumer confidence index for November: 88.7 points, compared to 95.5 in October. The 6.8-point drop took the gauge to its lowest level since April and placed it well below the market consensus. The number, by itself, would already be uncomfortable; What worried analysts was the anatomy of the crash.

The Present Situation Index, which summarises the assessment of current business and employment conditions, fell to 126.9 points, a sign that households are beginning to perceive a less comfortable environment. Even more revealing was the Expectations Index, which includes the six-month outlook for income, employment and activity: it fell to 63.2, well below the threshold of 80 that the institution itself associates with a higher probability of recession in the following twelve months.

The qualitative responses give a name to the malaise: inflation that, although moderating in official statistics, is still perceived as high; persistently restrictive interest rates; tariffs and trade tensions that fuel the sense of fragility; political polarization in a pre-election year; and the lagged effect of the recent federal government shutdown, which left its mark on salaries, contracts, and confidence in the management capacity of the public sector.

In other words, sentiment has deteriorated just as financial markets were beginning to convince themselves that the economy could cross the final stretch of the cycle with an  almost painless soft landing.

A tired consumer… but still standing

The importance of the data goes beyond the negative surprise of the month. The weight of the consumer in the US economy is what makes this indicator more than just a mood thermometer. According to the Bureau of Economic Analysis (BEA) national accounts, personal consumption expenditure accounted for about 68–69% of GDP in 2024–2025, the highest level in modern records. When the pillar that supports two-thirds of the activity begins to show cracks, the market listens.

Until now, consumer behavior has been remarkably resilient. Real consumption continued to grow in the first half of 2025, supported by a still-strong labour market and the so-called wealth effect derived from stock indices near record highs. A significant part of this boost also comes from the top of distribution: the top 10% of households with the highest income account for approximately half of total consumption, which cushions the impact of the loss of purchasing power in the middle- and low-income segments.

The problem is that this balance is inherently fragile. A consumer who says he feels worse, but who continues to spend, can sustain GDP for a while. However, when this deterioration in mood coincides with signs of cooling in the labour market, the likelihood that caution will eventually filter into purchasing decisions increases significantly. It is at this point that November’s confidence data ceases to be statistical noise and becomes a possible turning point in the narrative of the cycle.

The labor market sends a mixed signal

As consumer confidence slid lower, the Labor Department offered another piece of the puzzle with the release of weekly unemployment benefit figures. In the week ended Nov. 22, initial claims fell to 216,000, down 6,000 from the previous week and below consensus expectations. The four-week moving average stood at 223,750, far from the levels historically associated with recession. Continuing claims, however, rose to 1.96 million, with an assured unemployment rate of 1.3%.

The photo, seen as a whole, is ambivalent. On the one hand, companies are not laying off en masse: initial applications remain in historically low ranges, similar to those of a year ago. On the other hand, the gradual increase in continuing requests points to a labour market where finding a new job begins to take longer, a classic feature of advanced phases of slowdown.

For the Federal Reserve, this is the kind of most uncomfortable environment: a labor market that is no longer overheated, but also has not deteriorated enough to warrant a hawkish shift in monetary policy. It’s a gray area where every marginal data point—such as consumer confidence—weighs more heavily than usual in the FOMC’s internal discussion.

A fiscal front far from being resolved

As households and markets readjust their expectations, the fiscal front offers little additional oxygen. According to the Congressional Budget Office (CBO), the federal deficit for fiscal year 2025 stood at around 5.9% of GDP, just shy of the 6.3% in 2024. Figures from the Monthly Treasury Statement, published by the Treasury Department, confirm a high level of indebtedness despite additional revenue from tariffs and the normalization of spending after the pandemic.

The structural message is clear. The United States continues to finance a significant portion of its expansion through deficits, and it does so in a context of much higher interest rates than those that marked the decade after the global financial crisis. The Treasury itself has seen interest expense rise rapidly, reflecting the cost of refinancing large debt in an environment of restrictive policy rates.

In practice, this reduces the scope for fiscal stimulus if the cycle deteriorates sharply. Each growth bump will be harder to cushion with discretionary policies, unless Congress is willing to tolerate even larger deficits. For markets, the combination of consumer malaise, high structural deficit and still-high rates is a reminder that the  American soft landing rests on a tighter financial and fiscal architecture than a simple quarterly GDP chart suggests.

The Fed between preemptive cut and the risk of moving late

In this context, attention returns, almost inevitably, to the Federal Reserve. At its Oct. 29 meeting, the FOMC kept the federal funds rate in the restrictive zone — following the cut implemented earlier that month — and reiterated its commitment to the 2% inflation target  and maximum employment, while acknowledging increased downside risks to the labor market.

Since then, the sequence of data – employment cooling, confidence falling, inflation more controlled – has led to two clear movements. On the one hand, the implied probabilities in Fed fund futures of a further cut at the December meeting have increased, according to estimates from tools such as CME FedWatch, collected by platforms such as Morningstar and Bloomberg. On the other hand, there is a subtle shift in tone from some members of the Committee, who are beginning to talk about the need to “tighten the degree of monetary tightening” if the labour market continues to weaken.

The Fed faces a classic dilemma here, but at a politically charged juncture. Cutting too soon and too quickly could reignite inflationary pressures at a time when headline inflation has not yet converged comfortably to 2%. Waiting too long, on the other hand, risks transforming a  manageable soft landinginto an unnecessary slowdown, especially if the deterioration in consumer confidence ends up trickling down to spending.

The fall in The Conference Board’s index does not solve that dilemma, but it does tip the balance: in the eyes of the market, a preemptive cut in December looks more and more like a fine-tuning of monetary tightening and less like an abrupt policy shift.

What to watch from now on

The week leaves, in short, a much less complacent message about the US economy. The consumer is beginning to resent it: the collapse in confidence in November does not in itself amount to a sign of an imminent recession, but it does constitute a serious warning about the sustainability of the current growth pattern. The labour market remains firm, but it no longer acts as a perfect shield: initial jobless claims remain at low levels, although continuous applications are rising and job creation is losing dynamism.

Fiscal space is tight: with a deficit of close to 6% of GDP and rising debt, the United States has less room than in previous episodes to sustain demand if the cycle turns around. And finally, the Fed is increasingly conditioned by a tense political and social environment, in which a rate cut in December will be read both economically and electorally.

For the investor, the lesson is not that “the United States enters a crisis,” but that the benign scenario – moderate growth, falling inflation, markets at record highs – can only be sustained as long as the consumer remains willing to be the silent hero of the cycle. November’s data suggests that this hero, rather than abandoning, is beginning to show fatigue. The question, from here on out, is whether economic policy will be able to give it a break before it decides to take its foot off spending.

References

• Board of Governors of the Federal Reserve System. (2025, October 29). Federal Reserve issues FOMC statement.
• Bureau of Economic Analysis. (2025). Shares of gross domestic product: Personal consumption expenditures (DPCERE1A156NBEA). Federal Reserve Bank of St. Louis (FRED) database.
• Congressional Budget Office. (2025, November 10). Monthly Budget Review: Summary for Fiscal Year 2025.
• The Conference Board. (2025, November 25). Consumer Confidence Declines in November.
• U.S. Bureau of Economic Analysis. (2025). Consumer Spending (Personal Consumption Expenditures).
• U.S. Department of Labor. (2025, November 26). Unemployment Insurance Weekly Claims.
• U.S. Department of the Treasury, Bureau of the Fiscal Service. (2025). Monthly Treasury Statement.