Consumer Sentiment Improves but Workers See Little Income Growth Ahead

The latest consumer confidence data points to a public that is cautiously recalibrating expectations for 2026, encouraged by cooling inflation yet unsettled by a volatile labor market.

Provisional February figures from the University of Michigan, released Friday (Feb. 6), show consumer sentiment edging up 1.6% from January, marking a modest improvement after months of deterioration.

The advance was powered by a 5.4% rise in assessments of current conditions, even as expectations for the future slipped slightly. From a longer perspective, however, sentiment remains 11.4% below year-ago levels and nearly 28% beneath its post-pandemic high in March 2024, underscoring how fragile the rebound remains.

Cooling Inflation Lifts Today’s Mood

The February increase reflects the belief in at least some tangible near-term relief. Year-ahead inflation expectations declined to 3.5%, their lowest point since January 2025, while consumers also reported modest improvements in personal finances and buying conditions for durable goods. Equity markets added further support, with portfolio gains over the past six months helping higher-income households feel more secure in the present.

Yet this improvement is narrowly distributed. The University of Michigan notes that stock holdings were a primary driver of the February lift, reinforcing that confidence is being rebuilt from the top down. Long-run inflation expectations, meanwhile, edged higher to 3.4%, still elevated compared to pre-pandemic norms, and expectations for future conditions softened, signaling that households remain guarded.

That asymmetry matters for the Labor Economy.

PYMNTS Intelligence’s January Wage to Wallet Index, a collaboration with Ingo Payments, shows that workers in essential, hourly roles continue to report persistently lower confidence than their non-Labor Economy peers, even as headline indicators improve. Labor Economy workers score roughly seven points lower on the sentiment index, and that gap has endured for months. More than one in four, 27.2%, say they expect to fall behind financially this year, compared with 21.1% of other workers.

Together, the two data sets tell a consistent story. While easing inflation is lifting near-term perceptions, it has not translated into confidence about longer-term financial progress.

Job Market Friction Reinforces Financial Caution

Employment dynamics help explain why.

University of Michigan respondents continue to cite job loss as a widespread concern, a view reinforced by federal data this week showing that job openings have declined sharply. The openings rate fell to 3.9% in December, down from 4.5% a year earlier and 5.2% in 2023, leaving roughly 1.2 unemployed workers for every available position. Less than two years ago, there were two openings for each job seeker.

PYMNTS Intelligence finds the same tension inside household balance sheets. About half of Labor Economy workers expect their income to remain flat in 2026, while nearly half anticipate higher monthly expenses. Only three in 10 believe they will be financially better off by year’s end, and 43% do not expect any improvement at all. Savings expectations mirror that restraint, with nearly one-quarter expecting to have less saved by the close of the year.

Concerns extend beyond pay. Only 65.3% of Labor Economy workers believe their skills will remain valuable as technology reshapes jobs, compared with 73.7% of non-Labor Economy workers. Roughly half worry about layoffs at their company, and more than one in four are uncertain whether their employer will remain in business. These anxieties align closely with Michigan’s finding that expectations for future conditions slipped in February even as current assessments improved.

In short, sentiment is improving because inflation is easing and present finances look marginally better. Confidence remains constrained because income growth and job mobility feel increasingly uncertain.

Despite the caution, both reports highlight practical avenues for progress.

PYMNTS Intelligence estimates that Labor Economy workers represent more than one-third of U.S. employees and drive over $1.7 trillion in annual spending, making their financial stability economically consequential. The Wage to Wallet Index points to specific interventions that align with what these households say they need: faster access to wages, tools that smooth uneven paychecks, automated micro-savings and clearer visibility into cash flow.

For workers juggling flat income and rising expenses, small design choices matter. Automatic transfers after each paycheck, real-time alerts that indicate when money can safely be set aside, and emergency savings features can reduce the risk of falling behind when bills arrive before income. Pairing these tools with opportunities to strengthen job skills, such as support for certifications or pathways to demonstrate new competencies, also addresses deeper concerns about employability in an AI-influenced labor market.

Taken together, the two reports point to a year defined less than exuberance than by recalibration.