Navigating Noise:
Grounding Amid Mixed Economic Signals
By Bryan Kaus
A lot of conversations and stories this week about the economy sparked me to write some thoughts of late - from how portfolios have been performing to what the best and worst strategic moves are for companies in a market that is - fluid to say the least. The economy of early 2025 has been sending mixed signals to markets amid a multitude of factors. On one hand, confidence indicators have plunged – surveys from Michigan to Munich show consumers and investors bracing for trouble. The University of Michigan's sentiment index, for example, has "lost more than 30% since December 2024" amid growing recession fears. In Europe, Germany's ZEW investor morale index collapsed to –14.0 in April from +51.6 in March as pessimism took hold. Such figures would normally spell storm clouds ahead.
Yet, on the other hand, hard data on spending and output remain surprisingly firm. U.S. consumer spending is still robust, and big banks are noting resilience. Bank of America's CEO Brian Moynihan recently pointed out that despite low confidence readings, household spending in early 2025 was about 6% higher than a year prior – an even faster growth rate than late 2024. JPMorgan's finance chief echoed this, saying "overall... spending patterns [are] sort of solid", consistent with a strong job market and even a "no-landing" economic scenario.
As business leaders, how do we reconcile this divergence between what people feel and what they're doing? And more importantly, how do we prepare for what comes next?
The Sentiment–Reality Gap:
It's not unusual for sentiment to lag or diverge from economic reality, but the current gap is striking. Multiple surveys show people are dour about the future. Consumers cite worries about "business conditions, personal finances, inflation, and labor markets" all deteriorating. Politically charged issues – a volatile trade war backdrop, rising interest rates, global conflicts – have spooked the collective psyche. The result: U.S. consumer confidence has sunk to its lowest since late 2022, and European expectations have slumped to levels not seen since the pandemic.
Yet, these same anxious consumers are, for now, still spending. Credit and debit card data indicate continued solid outlays on travel, dining, and goods. It appears many households are in a "psychological recession" but not an actual one.
Several factors may explain this. Labor markets remain tight – unemployment is low and wages have risen – giving people the wherewithal to spend even if their mood is sour. During 2020-2021, massive stimulus built up savings buffers which some families are still drawing on. And there's a bit of pent-up demand in play: after pandemic restrictions, consumers may be reluctant to cut back on enjoyments like travel (even if they feel pessimistic when answering survey questions).
Moynihan described this dynamic well: Americans are "worried about the economy but continue to spend at a steady pace," a pattern seen repeatedly in recent years. In his view, negative sentiment partly reflects uncertainty over shifting policies, whereas actual behavior responds to cash flow and needs.
In short, the "real" economy (jobs, paychecks, sales) has held up even as the "perceived" economy feels shaky.
Global Signals and Policy Reality:
The divergence isn't just in the U.S. – it's global. Europe provides a vivid example. Coming into 2025, Europe's energy crisis had eased and unemployment was low, yet investor confidence suddenly cratered. The Euro Area ZEW index slumped by 58 points in April, to its weakest level since 2022. Such swings hint that events – perhaps a flare-up in trade tensions or financial market volatility – can rapidly darken the outlook.
Meanwhile in China, consumer sentiment has been fragile as well, even though Chinese shoppers are gradually spending more post-COVID.
These cross-currents put central banks in a bind. How should policymakers respond when people say one thing but do another? The U.S. Federal Reserve, for instance, hears the drumbeat of caution – Fed Chair Jerome Powell noted "dimming expectations and higher uncertainty" in surveys, tied in part to trade policy worries. Yet the Fed also sees an economy still growing ("still solid," in Powell's words) and inflation that, while down from its peak, remains above comfort.
Their response so far has been to stay the course on tighter monetary policy – continuing to fight inflation until there's clear evidence of a slowdown. In Europe, the ECB faces a similar quandary: inflation is only gradually coming down, so they feel compelled to raise rates further, even as sentiment indicators hint at a downturn.
This is the policy reality: decisions must be data-driven, and right now the data on employment and spending is relatively strong. But policymakers also know sentiment can be self-fulfilling. If pessimism persists, companies might slash investment or hiring in anticipation of trouble, thus causing the downturn everyone feared. It's a delicate balancing act – avoiding overreaction to noise, but not missing inflection points.
Citigroup's analysts capture this balance in their outlook: they acknowledge the economy "has defied expectations" and may continue growing modestly into 2025, yet they flag that renewed inflation or trade turmoil are key risks that could quickly change the trajectory. In other words, enjoy the resilience, but stay vigilant.
Don't Be Fooled by the Flush Times:
For business leaders, the key message is cautionary: do not mistake short-term resilience for permanent immunity. Strong consumer spending amid low sentiment can be a warning sign – it might mean people are stretching, not that everything is fine. Always prepare!
Indeed, bank data suggest some cracks forming: more consumers are resorting to credit, and savings rates have come down. If interest rates remain high, that buffer will erode. Bank of America's CEO noted that while they expect continued growth, they also foresee overall U.S. economic growth slowing to ~2% this year (from the high 2's) and that ongoing tariffs/trade frictions could shave roughly 0.4% off GDP growth in the first half. These headwinds haven't fully hit yet, which implies current spending could cool as the year progresses.
Sentiment indexes are essentially early warning systems. In the University of Michigan survey, the share of consumers expecting rising unemployment has more than doubled since late 2024. That hasn't shown up in jobless claims yet – but if enough people feel uneasy, they may start to pull back "just in case," and businesses could freeze hiring preemptively. Likewise, if investors are pessimistic (think of that ZEW plunge), financing for new ventures or expansions may dry up.
The optimistic scenario is that sentiment recovers to match the decent economic fundamentals – perhaps as inflation eases or trade spats get resolved. But a prudent leader should also ask: what if the fundamentals end up sliding to meet the low sentiment?
Leadership in a "Psychological" Economy:
Leading through these mixed signals requires a steady hand and a clear eye. First, it calls for data-driven clarity: track your own business metrics closely (order books, customer inquiries, payment delays) for any turn that might corroborate the sentiment downturn. Sometimes the macro gloom won't affect your sector at all – not all noise is signal. But if it is, you want to see it early.
Second, communicate with stakeholders candidly. Acknowledge the confusing environment: for example, tell your team "We've had strong sales this quarter, but we're also mindful of the broader caution out there." This balanced messaging builds credibility.
Third, avoid over-extrapolation. Do not assume that because your company is doing well while others fret, you are invincible. History shows many cases (the housing market in 2007, for one) where spending stayed hot right up until the moment it suddenly wasn't. If you have windfall profits now, consider bolstering your balance sheet or investing in efficiency improvements, rather than assuming the party will continue indefinitely.
As an energy sector executive, I recall the sentiment whiplash during COVID – oil demand (and prices) plunged in early 2020 on fearful sentiment, then surged back by 2021 once stimulus and optimism returned. Those who navigated that successfully didn't assume either extreme would last; they stayed agile.
Policy makers too should take a page from that playbook. During COVID, governments intervened massively because they correctly read sentiment collapse as an existential threat. Today the situation is less dire, but policy should still aim to bolster confidence where possible – through clear communication, sensible fiscal support in targeted areas, and progress on resolving the uncertainties (for instance, finding negotiated paths on trade issues rather than endless escalation).
Final Thoughts:
The divergence between sentiment and spending won't last forever – they will eventually converge. Our job as leaders is to ensure we're prepared when they do. If the pessimists are proven right and a downturn arrives, having built up resilience and contingency plans will pay off. If instead the economy powers through and sentiment improves, then our reward is the additional growth from investments we confidently made during the uncertainty.
In either case, staying level-headed is key. This means recognizing the current strong consumer data as real but possibly transitory – a final chapter of post-pandemic demand – and recognizing the gloomy sentiment as concerning but surmountable with the right actions.
It is easy to get caught up in the noise and emotions of the moment – whether in business or politics. But ultimately, you need to play the game effectively no matter what cards are dealt. The worst mistake would be to ignore one side of the equation completely. Either blind optimism ("consumers are spending, full speed ahead!") or blind pessimism ("everything is doomed, cut all spending!") could steer us off course.
The motto I embrace is: hope for the best, prepare for the worst, and avoid being swayed by every headline. In practical terms, that might entail continuing strategic projects, but with built-in flexibility; retaining talent, but also controlling costs where prudent; and engaging with policymakers to advocate for measures that support sustained growth (such as stable interest rates once inflation permits, or trade clarity).
By viewing the economy's mixed signals through a pragmatic, non-partisan lens, we turn a confusing picture into a coherent strategy. We can acknowledge the noise, but focus on the signal – guided by data, experience, and a commitment to long-term strength over short-term euphoria. That is how we won't mistake noise for strength, but rather turn today's ambiguity into tomorrow's opportunity.