Doug Ramsey, Chief Investment Officer of The Leuthold Group, is warning that weakening consumer sentiment could push the U.S. economy into a self-inflicted downturn—even if underlying fundamentals remain relatively stable.
In a recent note to clients, Ramsey pointed to mounting psychological pressures that, if left unchecked, could tip GDP growth toward zero and hasten the onset of a recession.
According to Ramsey, the current environment presents elevated risk for what he terms a “self-fulfilling confidence collapse.” He attributes this growing threat to sharply declining consumer expectations, which play a significant role in household spending behavior—the primary engine of U.S. economic activity. “It’s an outcome that would not merely be self-fulfilling, but self-inflicted as well,” he warned.
Ramsey’s concerns center around several key indicators of consumer sentiment, each of which has deteriorated in recent months:
1. Consumer Expectations Index:
The Conference Board’s Expectations Index dropped to 54.4 in April—the lowest level since 2011. More significantly for market observers, the index remains well below the 80-point threshold that has historically been consistent with recessionary conditions. The reading reflects deepening pessimism among consumers regarding future business conditions, labor markets, and income expectations.
2. One-Year Inflation Expectations:
The University of Michigan’s latest consumer survey shows median inflation expectations have risen to 5%—up sharply from a recent low of 2.6% in November. While actual inflation has moderated, perceptions among consumers are trending in the opposite direction, a divergence that may prompt spending slowdowns and reduce real consumption growth.
3. Unemployment Expectations:
Sentiment around the labor market has soured. The University of Michigan survey indicates that 67% of respondents now expect unemployment to rise over the next 12 months, compared to just 33% back in November 2024. That shift in expectations could further constrain consumer confidence and discourage large-ticket purchases or discretionary spending.
From Ramsey’s vantage point, these shifts in sentiment could prove more damaging to economic growth than most headline data currently suggest. He estimates that the drop in the Conference Board’s Consumer Expectations Index alone—absent any changes in monetary policy, employment, or inflation—could drag real GDP growth from around 3% to “essentially zero.”
That downside risk comes into sharper focus in light of the latest economic data. First-quarter GDP contracted 0.3% on an annualized basis, according to the Commerce Department’s advance estimate. While that decline may prove transitory, another negative quarter would technically place the U.S. in a recession, even as broader economic indicators still show relative strength.
Notably, not all forecasters share Ramsey’s pessimism. The Federal Reserve Bank of Atlanta projects 2.4% real GDP growth for the current quarter. Meanwhile, the labor market remains resilient, with April’s unemployment rate holding steady at 4.2%—a historically low level that continues to support income growth and spending capacity.
Still, Ramsey’s perspective introduces a behavioral dimension to the economic narrative that wealth advisors and RIAs may want to monitor closely. Even in the absence of a fundamental shock—such as aggressive monetary tightening or a geopolitical crisis—the economy could stall if consumers collectively retreat into caution. That behavioral reflex, he argues, is already underway.
For investment professionals managing client portfolios, the implications are twofold. First, deteriorating sentiment indicators may act as a leading signal for near-term volatility in consumer discretionary and cyclical sectors. Second, maintaining discipline around asset allocation—especially in balanced portfolios—could become more important if GDP growth begins to stagnate despite resilient employment and earnings figures.
As Ramsey sees it, confidence is the variable currently at risk of unraveling the recovery. “This is not just about what’s happening to the hard data,” he wrote. “It’s about what people believe is going to happen—and that belief itself can move markets and economies.”
For RIAs advising high-net-worth clients, this means greater attention may be warranted on managing expectations, maintaining long-term strategic positioning, and emphasizing the difference between short-term noise and fundamental trends. While macroeconomic conditions appear stable on the surface, sentiment-driven behavior could create unexpected dislocations that require both risk management and client communication to navigate effectively.
