Consumer Confidence Ticked Up in February, but the Expectations Index Has Stayed Below the Recession Warning Threshold for 13 Consecutive Months

The Conference Board reported this week that its Consumer Confidence Index rose to 91.2 in February, up from a revised 89.0 in January, a modest improvement that generated headlines about resilient American consumers. But those headlines obscure a more troubling signal buried in the data: the Expectations Index, which measures how consumers feel about business conditions, job availability, and income prospects over the next six months, has now remained below 80 for thirteen consecutive months. A reading below 80 has historically signaled a recession within the following twelve months, and the streak that began in February 2025 is now the longest sustained period below that threshold since the lead-up to the 2008 financial crisis.

The Gap Between Headlines and Reality

Consumer confidence surveys contain two distinct components, and the divergence between them has become one of the most important and least discussed dynamics in the current economic landscape. The Present Situation Index, which captures how consumers feel about current economic conditions, has remained relatively stable. People who have jobs generally feel secure in them. Spending on services, particularly travel, dining, and entertainment among higher-income households, continues at a healthy clip.

But when those same consumers are asked to look forward, their outlook darkens considerably. The Expectations Index has been mired below 80 since February 2025, a remarkable duration that reflects deep-seated anxiety about the trajectory of the economy. Americans are telling pollsters that they expect business conditions to deteriorate, that jobs will become harder to find, and that their incomes will not keep pace with their expenses.

The divergence creates a portrait of an economy that feels adequate in the present tense but fragile when projected into the future, a combination that often precedes inflection points in consumer behavior.

Why This Signal Matters

The Expectations Index's track record as a recession indicator is not a matter of opinion. It is an empirical pattern documented across decades of economic data. Every recession since the Conference Board began publishing the survey in 1967 was preceded by a sustained period with the Expectations Index below 80. The metric has produced occasional false positives, periods where it dipped below the threshold without a recession following, but those instances were typically brief. A thirteen-month streak represents something different: a sustained erosion of forward-looking confidence that is consistent with, though not a guarantee of, an approaching downturn.

The signal gains additional weight when considered alongside other sentiment measures. The AAII Investor Sentiment Survey, which tracks the mood of individual stock market participants, showed bearish sentiment climbing to 39.8% in the latest reading, well above the historical average of 31%. Bullish sentiment fell to 33.2%, below the long-run average of 37.5%. The bull-bear spread turned negative for only the second time in twelve weeks, a shift that reflects growing pessimism not just among consumers broadly but among the subset of Americans most attuned to financial markets.

What Is Driving the Pessimism

Three forces are compounding to keep expectations suppressed even as present conditions hold up.

The first is inflation persistence. The Federal Reserve's preferred inflation measure reaccelerated to 3.1% in the latest reading, and consumers cite high prices as their primary economic concern in open-ended survey responses. The psychological impact of cumulative price increases since 2021 has not faded, and each new data point showing inflation running above the Fed's 2% target reinforces the perception that the cost-of-living crisis is far from resolved.

The second is tariff and trade uncertainty. With 25% duties on Canadian and Mexican imports scheduled to take effect on March 4, consumers are bracing for price increases on automobiles, groceries, and energy. Survey respondents increasingly mention tariffs unprompted when describing their economic concerns, a shift from a year ago when trade policy barely registered in consumer sentiment data.

The third is employment anxiety, particularly among white-collar workers. The combination of federal workforce reductions, corporate layoffs driven by AI adoption, and a cooling pace of hiring in professional services has created a sense of vulnerability among demographics that traditionally felt insulated from economic downturns. When Block announced the elimination of 4,000 jobs, nearly half its workforce, citing AI as the driving force, it crystallized a fear that had been building for months: that the next wave of job losses would not be concentrated in manufacturing or retail but in the office parks and tech campuses of the knowledge economy.

How Consumers Are Responding

The behavioral evidence suggests that pessimistic expectations are beginning to translate into changes in how Americans spend and save. The personal savings rate fell to 3.6% in the latest reading, well below the pre-pandemic average, as wages grew at their slowest pace in seven months. Consumers are spending, but they are doing so increasingly on credit rather than income, a pattern that is sustainable in the short term but corrosive over time.

Credit card delinquencies have climbed to their highest level in nearly a decade. Auto loan delinquencies are rising. And the aggregate household debt figure hit a record $18.8 trillion, a milestone that would be less concerning if it were accompanied by robust income growth but instead coincides with a period of decelerating wage gains.

The gap between what consumers say they feel and how they actually behave has historically been a lagging indicator. Spending habits change slowly, driven by inertia, contractual obligations, and the difficulty of adjusting lifestyles downward. But when sentiment eventually translates into action, the shift can be abrupt. The thirteen-month signal from the Expectations Index is not a prediction that a recession has arrived. It is a warning that the conditions under which one becomes more likely are firmly in place, and that the buffer between current consumer resilience and a meaningful pullback in spending is thinner than the headline confidence number suggests.

For investors, policymakers, and anyone trying to understand where the American economy is headed, the Expectations Index deserves more attention than the headline number that overshadows it. The present may feel manageable. The future, in the eyes of the consumers who power 70% of GDP, looks increasingly uncertain.