A Tale of Two Economies
The current economic landscape presents a compelling paradox: while official reports suggest a slight improvement in the overall economic outlook, many Americans, including the residents of Kansas, continue to brace for higher prices. This seemingly contradictory state of affairs—a cautious uptick in optimism coexisting with stubborn inflation concerns—forms the core of the economic narrative. Understanding this dynamic is not merely an academic exercise; it directly impacts daily lives, influencing everything from household budgeting and major purchasing decisions to job security and the availability of goods.
For Kansans, these national trends intertwine with unique local conditions. The state’s diverse economy, encompassing robust agriculture, manufacturing, and a growing services sector, experiences national economic shifts through its own distinct filters. By examining the various ways the economy can be viewed—through the lens of consumer attitudes, business activity, and policy decisions—a clearer picture emerges, empowering individuals and businesses across Kansas to make more informed financial and strategic choices in an evolving economic environment.
Decoding Economic Barometers: What the Data Reveals
To understand the complex interplay of economic forces, it is essential to consult key indicators that measure the health and direction of the economy. These barometers provide a quantitative foundation for assessing both current conditions and future expectations.
Consumer Confidence & Sentiment: The Pulse of the People
Consumer attitudes are powerful drivers of economic activity, as household spending accounts for a substantial portion of the nation’s economic output. Two primary indices capture this vital pulse: The Conference Board Consumer Confidence Index and the University of Michigan Consumer Sentiment Index.
The Conference Board Consumer Confidence Index (CCI) is a monthly survey designed to reflect prevailing business conditions and likely developments in the months ahead. It gathers information on consumer attitudes, buying intentions, vacation plans, and expectations for inflation, stock prices, and interest rates. Conducted online by Toluna, the index is normalized to a 1985 baseline of 100. In July 2025, the overall CCI improved by 2.0 points, reaching 97.2 from 95.2 in June. This aggregate improvement, however, masks some underlying complexities. The Present Situation Index, which assesses consumers’ views of current business and labor market conditions, actually fell slightly by 1.5 points to 131.5. Conversely, the Expectations Index, reflecting short-term outlooks for income, business, and labor market conditions, rose by a more significant 4.5 points to 74.4.
A closer examination of these figures reveals a nuanced form of optimism rather than a broad surge of confidence. While the Expectations Index saw an uptick, it has remained below the critical 80-point threshold—a level that typically signals an impending recession—for six consecutive months. This suggests that the improvement in overall confidence is largely a cautious rebound, driven by a slightly less pessimistic outlook on the future, rather than robust confidence in current conditions. Consumers expressed less pessimism about future business conditions and employment, and more optimism about future income. Yet, their appraisal of current job availability continued to weaken for the seventh consecutive month, reaching its lowest point since March 2021. The perceived likelihood of a U.S. recession over the next 12 months also declined slightly in July, though it remained above 2024 levels. This indicates that while immediate recession fears may have eased somewhat, a significant portion of the population still harbors concerns about the economy’s near-term trajectory.
A notable factor influencing consumer perceptions, as highlighted by the Conference Board, is the impact of tariffs. Consumer write-in responses explicitly indicated that tariffs remained a top concern, primarily associated with expectations of higher prices. This direct link drawn by consumers between a specific trade policy and their personal inflation outlook provides a concrete explanation for the persistence of price concerns, even as other economic metrics show signs of stabilization.
The University of Michigan Consumer Sentiment Index (UMich ICS) is another widely followed monthly survey that queries consumers on their views of personal finances, as well as the short-term and long-term state of the U.S. economy. This index is considered an important leading economic indicator, given that consumer spending accounts for approximately 68.1% of the U.S. economy. The survey involves at least 500 telephone interviews each month, asking 50 core questions, with a mix of new and repeat respondents to effectively track changes over time.
In July 2025, the UMich ICS rose to 61.8, an increase from 60.7 in June. While this marks its highest level in five months, it is crucial to recognize that this improvement starts from a very low base. The current reading remains significantly below historical averages, sitting at the 6th percentile of the 571 monthly data points recorded since 1978. This means that despite the recent upward movement, the absolute level of consumer optimism remains profoundly depressed compared to long-term norms. The Current Economic Conditions Index (CECI), a sub-index reflecting views on current financial situations and the overall economy, rose to 66.8, its second consecutive monthly increase and highest since January. Similarly, the Consumer Expectations Index (CEI), gauging the future outlook, also increased for the third consecutive month to 58.6, though it still represents a 14.8% decline from one year ago.
The differing focus of the two major sentiment indices is also noteworthy. The Conference Board’s CCI tends to be more influenced by employment and labor market conditions, whereas the University of Michigan’s ICS places a greater emphasis on household finances and the impact of inflation. This distinction helps explain why these prominent indices might present slightly different economic pictures or highlight varying aspects of consumer concern, underscoring that “views on the economy” are multifaceted and depend on which specific aspects are being weighed most heavily by the survey.
Table 1: Key US Consumer Confidence & Sentiment Indicators (July 2025)
| Indicator | Value (July 2025) | Change from June | Notes |
| Conference Board CCI (Overall) | 97.2 | +2.0 points | Stabilized since May, but below last year’s levels |
| Conference Board Present Situation Index | 131.5 | -1.5 points | Current job availability weakened for 7th consecutive month |
| Conference Board Expectations Index | 74.4 | +4.5 points | Remains below 80-point recession threshold |
| UMich ICS (Overall) | 61.8 | +1.1 points | Highest since February, but historically low (6th percentile) |
| UMich Current Economic Conditions Index | 66.8 | +3.1% | Second consecutive monthly increase |
| UMich Consumer Expectations Index | 58.6 | +0.9% | Third consecutive monthly increase, but down 14.8% YoY |
| Conference Board 12-month Inflation Expectations | 5.8% | -0.1 points | Eased slightly from 5.9% in June, peak 7% in April |
| UMich Year-ahead Inflation Expectations | 4.4% | -0.6 points | Lowest since February 2025, but above Dec 2024 |
| UMich Long-run Inflation Expectations | 3.6% | -0.4 points | Lowest since February 2025, but above Dec 2024 |
Business Activity Indicators: The Engine Room of the Economy
Beyond consumer sentiment, business activity indicators provide crucial insights into the supply side of the economy—production, orders, and employment within firms. The Purchasing Managers’ Index (PMI) is a widely used tool for this purpose.
The Purchasing Managers’ Index (PMI), compiled by the Institute for Supply Management (ISM), is a diffusion index that gauges whether market conditions are expanding, staying the same, or contracting. A reading above 50 signifies expansion compared to the previous month, while a reading below 50 indicates contraction. A value of 50 suggests no change. The ISM produces PMIs for both the manufacturing and services sectors.
The ISM Manufacturing PMI considers new orders, production, employment, supplier deliveries, and inventories with equal weighting. In June 2025, the U.S. ISM Manufacturing PMI stood at 49.00. While this marks an increase from 48.50 in the previous month and a year ago, it remains below the 50-point threshold, indicating that the manufacturing sector is still in a state of contraction. This suggests ongoing pressures on the supply side, which can affect the availability of goods and potentially contribute to price pressures if supply struggles to meet demand.
In contrast, the ISM Services PMI (also known as the Non-Manufacturing PMI), which covers sectors such as transportation, insurance, construction, and education, presented a more positive picture. In June 2025, this index was 50.80, up from 49.90 in May and 48.80 a year prior. A reading above 50 indicates expansion, suggesting continued growth in non-manufacturing activities. This divergence between the manufacturing and services sectors points to a “two-speed economy,” where the goods-producing segment continues to face headwinds, while the larger services sector demonstrates resilience and growth.
Table 2: Key US Business Activity Indicators (June 2025)
| Indicator | Value (June 2025) | Change from May | Interpretation |
| ISM Manufacturing PMI | 49.00 | +0.5 points | Contraction, but at a slower rate |
| ISM Services PMI | 50.80 | +0.9 points | Expansion |
Kansas’s Own Pulse: Local Economic Indicators
While national indicators provide a broad context, understanding the economic reality in Kansas requires a look at local data and sentiment. Several state-specific measures offer this localized perspective.
The Kansas Consumer Sentiment Survey (KCSS), conducted quarterly by the University of Kansas Survey Research Center since 1996, surveys 400 randomly selected residents about their personal, national, and state economic expectations. Historically, in August 1997, Kansans generally expressed more optimism about the economy than the previous year, anticipating national economic health and improvements in their personal finances.
The Kansas Current Index, developed by the Center for Economic Development and Business Research (CEDBR) at Wichita State University, measures the overall economic well-being across all 105 Kansas counties. This index incorporates local employment figures, average inflation-adjusted weekly wages, and dominant county-specific economic drivers such as wheat prices, oil production, and consumer goods, with variables seasonally adjusted and weighted by community prevalence.
Recent Kansas labor market data from the Bureau of Labor Statistics (BLS) for June 2025 show a stable and relatively low unemployment rate of 3.8%. This rate is notably lower than the projected national unemployment rates of 4.0% for calendar year (CY) 2024 and 4.1% for CY 2025. While total Kansas private sector employment saw a slight decrease of 100 jobs from February 2024 to February 2025, public sector jobs increased by 3,400 during the same period. Sectors experiencing job growth include construction (+4,400), private education and health services (+4,400), and local government (+2,200). Furthermore, average real hourly earnings in Kansas increased by $1.07 (3.5%) from February 2024 to February 2025, and January estimates indicate approximately 1.25 job openings for every unemployed person. This suggests a resilient labor market in Kansas that may provide a buffer for consumer spending and confidence, even amidst mixed national signals.
However, a closer look at regional sentiment within Kansas reveals disparities. The Kansas Rural Mainstreet Index (RMI) for July 2025 indicates persistent pessimism among rural bankers, with the index declining to 36.0 from 37.0 in June. This downbeat outlook is directly linked to weak grain prices, negative farm cash flows, and concerns over tariff retaliation. This highlights that the “Kansas economy” is not a uniform entity; specific sectors and regions face distinct challenges, directly influencing local sentiment and economic well-being. This regional disparity is a crucial aspect of understanding the state’s overall economic health.
Forecasts for the state’s broader economic output indicate modest growth. Real Kansas Gross State Product (GSP) is estimated to increase by 1.7% in CY 2025 and 2.0% in CY 2026 and 2027. Similarly, Real Kansas Personal Income (KPI) is expected to increase by 1.7% in CY 2025 and 2.0% in CY 2026 and 2027. While these are slight downward revisions from earlier estimates, they still point to continued economic expansion. The statewide drought has also moderated, contributing to an improved outlook for agricultural production, though the challenges in rural sentiment persist.
The impact of national trade policies, specifically tariffs, is felt directly in Kansas. Rural banker pessimism is explicitly tied to “tariff retaliation concerns,” and reports indicate that manufacturing and agriculture are particularly vulnerable to these policies. Firms are reportedly pre-purchasing equipment in anticipation of cost increases due to tariffs. This demonstrates how national policy decisions have tangible and immediate effects on key Kansas industries, influencing business decisions and local economic sentiment.
Table 3: Kansas Economic Snapshot (Latest Available Data)
| Indicator | Value | Period/Forecast | Notes |
| Kansas Unemployment Rate | 3.8% | June 2025 | Stable and relatively low compared to national rates |
| Kansas GSP Growth | +1.7% | CY 2025 (forecast) | Moderating growth, but still positive |
| Kansas Personal Income Growth | +1.7% | CY 2025 (forecast) | Expected to increase moderately |
| Kansas Rural Mainstreet Index | 36.0 | July 2025 | Rural bankers remain pessimistic due to weak grain prices and tariffs |
| Kansas Average Real Hourly Earnings Growth | +3.5% | Feb 2024-Feb 2025 | Provides some buffer against inflation for households |
The Inflationary Undercurrent: Why Prices Keep Climbing
The persistent expectation of rising prices, despite some signs of economic improvement, is a central theme in the current environment. To understand this, it is crucial to delve into the mechanisms and recent history of inflation.
Understanding Inflation’s Roots: More Than Just Rising Prices
Inflation is fundamentally a general increase in the prices of goods and services over time, which consequently reduces purchasing power—meaning a fixed amount of money buys less. This phenomenon is driven by a complex interplay of factors, typically categorized into three main types.
Demand-Pull Inflation occurs when there is “too much money chasing too few goods”. This happens when the aggregate demand for goods and services in an economy outstrips its capacity to produce them, often observed during periods of strong economic growth or following significant economic stimulus. As more jobs become available and wages rise, household incomes increase, leading to greater consumer spending and further escalating demand. When demand consistently exceeds supply, businesses gain the ability to raise prices, contributing to inflation.
Cost-Push Inflation, on the other hand, arises from increases in the costs of production inputs, forcing producers to raise their prices to maintain profit margins. These input costs can include higher wages, raw materials (such as oil), or energy. Disruptions in supply chains are a common catalyst for cost-push inflation. For instance, tariffs, by increasing the cost of imported goods, directly contribute to this type of inflation. When the cost of producing goods and services rises, firms typically produce less and charge more, leading to upward pressure on prices across the economy.
A critical, often self-fulfilling, component of inflation is Inflation Expectations. These are the beliefs that households and businesses hold about future price increases. If there is a widespread expectation that prices will rise, businesses may preemptively increase their prices to cover anticipated future costs, and workers may demand higher wages to preserve their purchasing power. This can create a “wage-price spiral,” where rising wages lead to higher prices, which in turn fuels demands for even higher wages, perpetuating the inflationary cycle.
Beyond these core drivers, Monetary and Fiscal Policies also play a significant role. Central bank actions, such as expanding the money supply or maintaining low interest rates, can stimulate demand and contribute to inflation. Similarly, government spending and budget deficits, if not matched by increased productive capacity, can inject too much demand into the economy, leading to fiscal inflation.
The Post-Pandemic Price Surge: A Complex Web of Factors
The recent surge in inflation following the COVID-19 pandemic was a multifaceted phenomenon, driven by a unique combination of demand, supply, and policy factors.
Initially, at the onset of the pandemic in 2020, inflation actually fell as widespread lockdowns reduced social interactions and curtailed consumption of in-person services. However, as economies began to adapt and reopen from mid-2020 to early 2021, inflation slowly started to rebound. This initial recovery was fueled by increases in food and energy prices, coupled with substantial fiscal aid packages that rapidly boosted consumer spending.
The most significant inflation surge occurred from March 2021 to July 2022. During this period, supply chain disruptions emerged as a primary cause. Product shortages, stemming from global supply chain problems like semiconductor scarcity, shipping delays, and factory shutdowns, coincided with robust consumer demand. The efficiency of “just-in-time” delivery systems, honed over decades, was severely tested and often unraveled, leading to widespread unavailability and higher costs. Simultaneously,
shifting consumer demand patterns played a role; during lockdowns, demand heavily favored home-related goods, overwhelming supply, before gradually shifting back towards services as economies reopened.
Geopolitical shocks further exacerbated the situation. The Russia-Ukraine war, which began in early 2022, significantly drove up global food and energy prices, adding another layer of cost-push pressure. On the policy front, large
fiscal stimulus packages, such as the American Rescue Plan Act, injected substantial funds into the economy, further fueling strong demand in an environment already constrained by supply limitations. The maintenance of low interest rates by central banks also contributed to this demand-side pressure. By mid-2022, a surge in
housing services inflation (including rent and owners’ equivalent rent) became a significant contributor to core inflation, reflecting a delayed impact of earlier booms in house prices.
From August 2022 to the present, the economy has entered a period of disinflation, with the rate of price increases beginning to cool. Inflation started to ease in late 2022 and approached the Federal Reserve’s 2% target by late 2023. This moderation was largely due to the dissipation of pandemic-induced supply chain stress and the easing of food and energy prices. However, core services inflation has shown greater persistence, remaining elevated, partly influenced by continued wage growth. This suggests that while some of the initial, more volatile inflationary forces have receded, underlying cost pressures, particularly labor-related, continue to exert influence.
3.3. The Psychology of Expectations: A Self-Fulfilling Prophecy
The role of inflation expectations extends beyond mere prediction; they are a fundamental driver of actual price dynamics. How individuals and businesses form these expectations significantly influences the economic trajectory.
Consumers tend to form their inflation expectations based on prices they encounter frequently and visibly in their daily lives, such as those for food and new vehicles. These categories have experienced disproportionately high volatility since the pandemic’s onset. This contrasts with how professional forecasters typically form their expectations, which are more aligned with the broader Consumer Price Index (CPI) and its weighted components. This divergence in focus creates a “perception gap” in inflation expectations: even if broader, aggregated inflation measures show moderation, consumers’ personal experience of price increases on essential and frequently purchased items might remain acute. This helps explain why many Americans continue to anticipate higher prices, even when overall economic sentiment shows signs of improvement.
Economic theory offers two main frameworks for understanding how expectations are formed:
- Adaptive Expectations suggest that people form their expectations about the future based on what has happened in the past, gradually adjusting their forecasts as they learn from previous errors. This backward-looking process can lead to systematic errors if the economic environment changes suddenly, as individuals may be slow to adapt to new realities.
- Rational Expectations, conversely, posit that individuals are not merely adaptive but actively rational. They utilize all available information, including current policies, economic theories, and a comprehensive understanding of the economy, to forecast future outcomes. Under this framework, predictable policy interventions may have limited real effects because individuals have already adjusted their behavior in anticipation of these policies.
Regardless of the specific mechanism, the power of expectations lies in their potential to become a self-fulfilling prophecy. If a widespread belief in future price increases takes hold, businesses will likely raise prices preemptively to cover anticipated higher costs, and workers will demand higher wages to maintain their purchasing power. This collective behavior then transforms the expectation into an economic reality.
Central banks, particularly the Federal Reserve, are acutely aware of this dynamic. A key objective of monetary policy is to “anchor” long-run inflation expectations. This means fostering a public belief that inflation will remain stable and predictable over the long term, largely unaffected by short-term economic shocks. When expectations are well-anchored, temporary price surges are less likely to translate into persistent inflation, as firms and consumers do not fundamentally alter their long-term pricing and wage-setting behaviors. However, if these expectations become “unanchored” and begin to drift upward, inflation can become much more difficult to control, potentially requiring more aggressive policy interventions. The challenge for policymakers, therefore, is not just to manage current prices but also to manage public psychology around future prices.
Impact on Everyday Life: Consumers, Businesses, and the Cost of Living
The prevailing economic conditions, characterized by improving sentiment alongside persistent inflation expectations, have tangible and varied impacts across different segments of the economy.
For Consumers: Navigating Spending, Saving, and Debt
Inflation’s most pervasive effect is the erosion of purchasing power; a fixed amount of money buys progressively less over time. This burden falls disproportionately on low-income consumers, who typically spend a larger share of their income on necessities and thus have less cushion against rising costs. Research indicates that post-pandemic, consumers appear more sensitive to inflation than wage growth when assessing their overall financial well-being.
The current environment creates a complex response in consumer spending and saving decisions. Higher inflation expectations can lead to seemingly contradictory behaviors. On one hand, some households, particularly for durable goods, may accelerate purchases to “buy now” before prices rise further, especially if nominal interest rates are perceived as fixed or low. Studies show that households with higher inflation expectations tend to save less and are more likely to acquire higher-value cars. This “splurging” behavior, particularly among higher-income Gen Zers and millennials, has been observed in categories like hotels, flights, and home decor, even when consumers reported intentions to cut back.
On the other hand, the erosion of purchasing power can prompt consumers to limit spending on non-essential items like entertainment and travel, prioritizing necessities such as gas and groceries. Elevated inflation expectations can also increase overall economic uncertainty, which may lead to an increase in precautionary savings. Consumers might delay large purchases, such as appliances or cars, hoping for prices to stabilize. This dual response creates a mixed picture in overall consumption data, where some segments of the population are cutting back while others are accelerating purchases or maintaining discretionary spending.
Interest rates play a critical role in shaping consumer financial behavior. While overall expectations for interest rate increases have declined, consumers specifically anticipate credit card rates to rise the most. Higher interest rates generally translate to tighter credit conditions, making it more difficult and expensive for consumers to obtain financing for major purchases like new cars or homes. This dampens consumer confidence and reduces the appeal of taking on new debt for large expenditures. For savers, rising interest rates offer the potential for higher returns on deposits, but the persistent inflation can still eat into the real value of these returns, meaning the actual gain in purchasing power may be minimal or even negative.
For Businesses: Pricing, Innovation, and Supply Chain Resilience
Businesses are navigating the inflationary environment with increasingly strategic approaches to pricing. Rather than implementing blanket price increases, many are adopting more nuanced methods. This includes adjusting discounts and promotions, leveraging non-price factors (such as lengthening lead times for certain products), and tailoring price increases to specific customer and product segments based on profitability and willingness to pay. Some companies are also using surcharges for services that place significant strain on their operations, like rush orders or small lot sizes. When setting prices, firms consider not only current production costs but also future costs, demand levels, and overall inflation expectations. The period of widespread growth in input prices and wages, combined with strong customer demand and reduced competition in 2021-2022, contributed to larger-than-usual price increases by firms. These sophisticated pricing strategies aim to maintain profit margins while managing customer perception and demand.
Inflationary pressures can also serve as a catalyst for innovation and investment. By developing new products or services that are more efficient or cost-effective, companies can maintain or even expand their profit margins. This focus on innovation can also open new markets and revenue streams, reducing a business’s reliance on existing products or markets that are particularly vulnerable to inflation. Certain industries, such as energy, financials, utilities, and technology, may even benefit from inflationary periods due to inherent pricing power or increased demand for their services. However, high and volatile inflation can also deter fixed investment, as rising costs and increased uncertainty make long-term capital expenditures riskier and less appealing.
Supply chain resilience and inventory management have become critical business priorities. Disruptions, exacerbated by pandemic-driven demand shifts and geopolitical events, directly contribute to inflation by increasing production and transportation costs and reducing the availability of resources. For example, a global shortage of computer chips led to reduced car production and, consequently, higher car prices. In this environment, businesses face a dilemma: holding more inventory to hedge against future price increases ties up valuable working capital, but holding too little can lead to production delays and missed sales opportunities. A significant shift in consumer behavior has been observed, with consumers increasingly prioritizing product availability over brand loyalty. This forces businesses to re-evaluate their inventory and sourcing strategies to ensure products are simply on the shelf, even if it means adjusting brand-specific offerings.
The Role of Policy: Steering the Economic Ship
Government policies, both monetary and fiscal, are crucial in attempting to steer the economy through periods of inflation and uncertainty.
Monetary policy, primarily conducted by the Federal Reserve in the U.S., involves managing the money supply to achieve maximum employment and price stability (low and stable inflation). The Fed employs tools such as adjusting the federal funds rate (the benchmark interest rate), conducting open market operations (buying or selling government bonds), and altering bank reserve requirements. In response to rapidly growing inflation, the Fed has increased interest rates, making borrowing more expensive, which in turn reduces consumer spending and business investment, thereby cooling the economy. In July 2025, the Fed left its key rate unchanged at 4.3%.
There is an ongoing discussion among Fed officials regarding the appropriate path forward. Some policymakers believe that holding the current rate is necessary due to elevated short-run inflation expectations and the upward pressure on goods inflation stemming from tariffs. Others argue that tariffs represent a “one-off increase” in the price level rather than a persistent inflationary force, and some even suggest that rate cuts are warranted before the labor market shows significant deterioration. This internal debate within the Fed highlights the complex, real-time interpretive challenges faced by policymakers and the differing views on the nature and persistence of current inflation drivers, particularly tariffs. This uncertainty directly influences market and consumer expectations for future interest rates and the overall economic trajectory.
Fiscal policy, managed by the government through spending and taxation, also influences economic conditions, including aggregate demand, employment, and inflation. An expansionary fiscal policy, involving lower tax rates or increased government spending, aims to stimulate demand and economic growth. Conversely, a contractionary fiscal policy, such as raising taxes or cutting spending, is used to combat inflation by cooling demand. However, contractionary fiscal policy, often characterized by budget surpluses, is rarely implemented due to its political unpopularity. Critics also argue that government spending can “crowd out” private sector investment and that fiscal stimulus is politically difficult to reverse once enacted.
A Historical Lens: Lessons from Past Economic Cycles
Examining past economic cycles provides valuable context for understanding current conditions and potential future paths, highlighting both enduring principles and unprecedented divergences.
The Great Inflation (1965-1982): A Cautionary Tale
The “Great Inflation,” lasting from 1965 to 1982, stands as a defining macroeconomic period of the latter half of the twentieth century. During this time, U.S. inflation dramatically escalated from approximately 1% per year to over 14%. This era compelled economists and policymakers to fundamentally rethink central bank policies.
The primary driver of the Great Inflation was attributed to excessive growth in the money supply, stemming from Federal Reserve policies. This was rooted in an erroneous belief in a stable, exploitable Phillips Curve—the idea that policymakers could achieve permanently lower rates of unemployment by accepting modestly higher rates of inflation. Other contributing factors included the collapse of the Bretton Woods international monetary system, significant fiscal imbalances, and a series of energy shortages that quadrupled crude oil prices. The lessons learned from this period were profound: the dangers of de-anchored inflation expectations, where public beliefs about future prices become self-fulfilling, and the limitations of attempting to “trick” the economy through systematic policy interventions. The experience underscored the critical importance of central bank credibility in maintaining price stability.
Post-Pandemic Anomaly: Sentiment vs. Spending Disconnect
For many decades, consumer sentiment and consumer spending historically moved in a synchronized fashion: when people felt uncertain about the economy, they tended to spend less. However, in the last few years following the pandemic, this long-standing relationship has notably broken down. Consumer sentiment plummeted as inflation surged and has not yet fully recovered, remaining well below pre-pandemic levels. Yet, aggregate consumer spending, even when adjusted for inflation, has not only remained robust but has actually increased compared to pre-pandemic levels, continuing to grow year over year. This unprecedented divergence between how consumers feel and how they spend is a critical aspect of the current economic landscape.
Several factors help explain this disconnect. Many households accumulated significant savings during the pandemic, with U.S. households holding approximately $8.7 trillion in cash in June 2024—nearly double pre-COVID norms. This substantial financial buffer has provided consumers with the capacity to continue spending despite their cautious outlook. Furthermore, income growth has been strong across various income distributions, outpacing inflation for many segments of the population. This means that for a significant portion of consumers, their real incomes have increased, allowing them to maintain or even increase their spending.
The phenomenon of “selective splurging” has also been observed, particularly among higher-income Gen Zers and millennials, who have continued to spend on categories like hotels, flights, and home decor, even if they reported intentions to cut back. This suggests that while concerns about rising non-discretionary costs (like groceries and gas) are prevalent, some discretionary spending remains resilient. The Kansas City Fed’s analysis supports this, noting a historically modest link between consumer sentiment and actual spending, suggesting that changes in sentiment do not always significantly alter spending forecasts.
This divergence is not uniform across the population. Higher-income consumers generally report feeling more optimistic than middle- and low-income consumers. Higher interest rates and elevated food prices are a more pressing concern for lower- and middle-income households. This is reflected in rising delinquencies on auto loans and credit cards, particularly within lower-income brackets, indicating financial stress for these groups. This highlights that the impact of inflation and the ability to maintain spending are stratified by income, adding a crucial social dimension to the economic analysis.
The Present Economic Reality: A Detailed Snapshot (July 2025)
As of July 2025, the U.S. economy presents a complex picture of cautious optimism, persistent price concerns, and bifurcated sectoral performance, with specific implications for Kansas.
Synthesis of Current US Consumer Sentiment and Inflation Expectations
Overall consumer confidence, as measured by The Conference Board’s CCI, showed a slight improvement to 97.2 in July, rebounding from earlier lows. Similarly, the University of Michigan’s ICS also inched up to 61.8. However, it is important to note that both indices remain below their levels from the previous year and significantly below historical averages, with the UMich ICS still reflecting historically low optimism at the 6th percentile of its historical data. The Expectations Index for the CCI, a key forward-looking component, continues to hover below the 80-point threshold that typically signals a recession.
Despite these cautious improvements in overall sentiment, consumers’ average 12-month inflation expectations remain elevated. The Conference Board reported an average expectation of 5.8%, while the University of Michigan’s year-ahead expectation was 4.4%, with long-run expectations at 3.6%. Although these figures have eased slightly from their peaks, they are still above December 2024 levels, indicating a persistent perceived risk of future price increases among the populace.
Analysis of Current US Manufacturing and Services Activity
The business landscape reflects a “two-speed” economy. The manufacturing sector, as indicated by the ISM Manufacturing PMI, remained in contraction in June 2025, with a reading of 49.00. While this marks an easing in the rate of contraction, it still points to ongoing supply-side pressures or a slowdown in demand for goods. In contrast, the services sector continues to expand, with the ISM Services PMI registering 50.80 in June. This indicates sustained growth in non-manufacturing activities, which comprise a larger portion of the U.S. economy.
Current Kansas Economic Indicators and Their Implications
Kansas’s labor market demonstrates relative strength, with a stable and comparatively low unemployment rate of 3.8% in June 2025. This suggests a more robust job market in the state compared to national averages. However, the sentiment among rural Kansans, as captured by the Rural Mainstreet Index, remains pessimistic. This is largely attributed to weak grain prices and concerns over tariffs impacting the agricultural sector. Despite these localized challenges, Kansas’s Gross State Product (GSP) and Personal Income are projected to experience modest growth in 2025.
Deep Dive into the Current Divergence: Why Americans Feel Slightly Better But Still Expect Higher Prices
The central paradox of improving sentiment alongside persistent inflation expectations can be attributed to several interconnected factors.
A significant contributing element is the role of tariffs. Consumers explicitly cite tariffs as a primary concern leading to higher prices, as evidenced by write-in responses in surveys. Federal Reserve officials also acknowledge the upward pressure tariffs exert on goods inflation, although there is an internal debate within the Fed as to whether this constitutes a “one-off” increase in the price level or a more persistent inflationary force. This direct link between specific policy decisions and perceived price increases is a substantial driver of the public’s sustained inflation expectations.
The labor market presents mixed signals, contributing to consumer uncertainty. While the overall unemployment rate remains low nationally, and Kansas’s labor market shows particular resilience with increasing real hourly earnings and more job openings than unemployed individuals , concerns about job availability weakening persist in broader national surveys. The ongoing debate within the Federal Reserve, with some officials highlighting a “stall speed” in private sector payroll growth, reflects this ambiguity. This creates an environment where, even if headline unemployment figures are favorable, a degree of apprehension about job security and wage growth lingers for consumers.
The “perception gap” in inflation is another crucial explanatory factor. Consumers tend to form their inflation expectations based on the prices of highly visible, frequently purchased goods, such as food, gasoline, and vehicles. These items have experienced significant and volatile price increases. This contrasts with the broader, aggregated inflation measures like the Consumer Price Index (CPI), which assign weights to a wider basket of goods and services. Consequently, consumers’ personal experience of price increases on essentials can be more acute and impactful than what official, statistically smoothed inflation figures might suggest. This divergence in how inflation is experienced and measured helps explain why the public’s perception of “prices going up” remains strong despite some reported moderation in overall inflation rates.
Finally, the sentiment-spending disconnect observed post-pandemic plays a role. Despite expressing cautious or even pessimistic sentiment, aggregate consumer spending has remained remarkably resilient. This continued spending is likely fueled by factors such as accumulated household savings and strong income growth for many, particularly higher-income consumers. This suggests that while individuals may
feel that prices are rising and express caution in surveys, their actual spending behavior might not fully reflect that pessimism, contributing to the paradoxical economic picture.
Looking Ahead: Forecasts and Future Implications
The economic outlook for the coming years suggests a path of moderation, though significant uncertainties, particularly concerning trade policy, remain.
Economic Projections (2025-2027): A Path Forward with Caveats
Reputable economic institutions generally project a moderation in U.S. economic growth. The International Monetary Fund (IMF) projects global growth at 3.0% for 2025 and 3.1% in 2026, an upward revision from previous forecasts. For the U.S., the Congressional Budget Office (CBO) anticipates real GDP growth to moderate to 1.9% in 2025 and 1.8% in 2026. The American Bankers Association (ABA) Economic Advisory Committee aligns with this, expecting real economic growth at 2.1% for both 2025 and 2026. Consumer spending growth is also expected to weaken, with Morgan Stanley forecasting nominal spending growth of 3.7% in 2025 and 2.9% in 2026. This broad consensus among forecasters points towards a controlled slowdown or “soft landing” for the economy rather than a severe recession.
Regarding inflation, the IMF predicts that U.S. inflation will remain above the target rate. The CBO, however, is more optimistic, expecting inflation to continue easing and reach the Federal Reserve’s 2% target by 2027. The Conference Board forecasts Personal Consumption Expenditures (PCE) inflation at 2.7% for 2025 and 2.6% for 2026 , while the ABA committee projects PCE at 2.5% in 2025 and 2.4% in 2026, both still above the Fed’s 2.0% target. The Consumer Price Index (CPI) in June 2025 was 2.7%. These projections indicate that while inflationary pressures are expected to abate, they may persist above the Federal Reserve’s target for some time.
The unemployment rate is generally expected to see a slight increase. The CBO projects the unemployment rate to rise to 4.6% in 2026 , while the Conference Board forecasts 4.0% in 2025 and 4.2% in 2026. The ABA committee anticipates a modest increase from the current 4.1% to 4.2% by the end of 2025.
In terms of interest rates, the CBO expects the Federal Reserve to continue lowering the federal funds rate in both 2025 and 2026. The Conference Board anticipates that the Federal Open Market Committee (FOMC) will likely resume cutting interest rates in December 2025. The ABA committee projects approximately two 25-basis-point cuts in both 2025 and 2026. Morgan Stanley specifically forecasts mortgage rates to fall to between 5.50% and 5.75% by March 2026.
A significant wildcard in these forecasts remains tariffs. Persistent tariffs, along with elevated uncertainty and geopolitical tensions, are consistently cited as major downside risks to economic growth and stability. The Conference Board even adjusted its forecast, now expecting the bulk of economic weakness stemming from tariffs to affect Q4 2025 and early 2026. This underscores tariffs as the foremost uncertain variable in the near-term economic outlook, directly influencing the trajectory of prices and overall economic health.
What This Means for Kansas: Localized Outlook
For Kansas, the national economic projections translate into a localized outlook with both opportunities and challenges.
The state’s labor market is expected to remain relatively strong. Kansas unemployment is projected to stay below national rates, though a slight uptick may occur. Real Kansas Personal Income is forecasted to continue growing moderately, and the increase in average real hourly earnings should provide some buffer against inflationary pressures for Kansan households. This suggests a degree of resilience for the state’s workforce and household finances.
The outlook for product availability and pricing in key sectors will be mixed:
- Agriculture: While the moderation of the statewide drought is a positive sign for agricultural production , weak grain prices and persistent tariff concerns continue to weigh heavily on rural sentiment and farm cash flows. This could impact the availability and pricing of agricultural commodities, both within Kansas and for export.
- Manufacturing: The national manufacturing sector’s continued contraction, even if easing, combined with its specific vulnerability to tariffs, suggests ongoing challenges for Kansas’s manufacturing base. This could affect the availability and cost of manufactured goods for consumers and businesses in the state.
- Services: The projected expansion of the national services sector aligns with job growth observed in Kansas’s private education and health services, and local government sectors. This indicates continued stability and demand in these areas, which are significant employers in the state.
- Housing: Nationally, housing affordability remains low due to elevated mortgage rates, with meaningful improvement not expected until 2026. This national trend will likely continue to impact the Kansas housing market, influencing homeownership rates and rental costs.
The most significant risk for Kansas’s economic future is the persistence of tariffs. As noted by the ABA committee, the longer tariffs remain in place, the greater the risk of recession and sustained price increases, particularly for imported goods and agricultural exports. Given Kansas’s strong agricultural and manufacturing sectors, which are directly impacted by trade policies, this remains a critical factor influencing the state’s economic trajectory.
Conclusions
The current economic environment is characterized by a nuanced interplay of improving sentiment and persistent inflation expectations. While national consumer confidence indices show a cautious rebound, this improvement often stems from previously low levels and is accompanied by lingering concerns about current job availability and the overall economic outlook. Kansas, too, reflects this complexity, with a resilient labor market and modest growth projections, yet significant pessimism in its crucial rural and agricultural sectors, largely driven by weak commodity prices and tariff concerns.
The enduring expectation of higher prices among Americans is not simply a statistical anomaly; it is a deeply rooted perception shaped by the lived experience of inflation on frequently purchased necessities like food and gas. This “perception gap” between consumers’ daily realities and broader economic aggregates, combined with the direct impact of tariffs on goods prices, fuels a self-fulfilling prophecy where anticipated price increases contribute to actual price hikes.
Businesses are responding with sophisticated pricing strategies and a renewed focus on innovation to maintain margins and adapt to supply chain challenges, recognizing that consumers now often prioritize product availability over brand loyalty. Meanwhile, monetary and fiscal policies are attempting to navigate this landscape, with central banks grappling with the challenge of anchoring inflation expectations amidst a complex mix of demand, supply, and policy-induced price pressures. The internal discussions within the Federal Reserve regarding the nature and persistence of tariff-driven inflation underscore the significant uncertainties facing policymakers.
Looking ahead, the consensus among economic forecasters points to a moderating economy rather than a sharp downturn, with inflation gradually easing and interest rates potentially declining. However, tariffs remain a prominent wildcard, posing a significant downside risk to both national and, particularly, Kansas’s economic health. For Kansans, navigating this environment will require continued vigilance on household budgets, an understanding of how global and national policies translate to local impacts, and an appreciation for the subtle shifts in consumer and business behavior that define this unique economic period.
