The American consumer isn’t simply pulling back. They are changing the way they spend – and save. Our U.S. Thematic and Equity Strategist Michelle Weaver digs into the data.

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Michelle Weaver: Welcome to Thoughts on the Market. I'm Michelle Weaver, Morgan Stanley's U.S. Thematic and Equity Strategist.

Today, the U.S. consumer. What's changing about the ways Americans spend, save and feel about the future?

It's Monday, July 7th at 10am in London.

As markets digest mixed signals – whether that's easing inflation, changing politics, and persistent noise around tariffs – U.S. consumers are recalibrating. Under the surface of headline numbers, a more complex story is unfolding about the ways Americans are not just reacting but adapting to macro challenges.

First, I want to start with a big picture. Data from our latest consumer survey shows that consumer sentiment has stabilized, even as uncertainty around tariffs persists, especially into these rolling July deadlines. Inflation remains the top concern for most. But the good news is that it's trending lower. This month more than half of respondents cited inflation as their primary concern, a slight decrease from last month and a year ago. Now, that's a subtle but a meaningful decline suggesting consumers may be adjusting their expectations rather than bracing for continued price shocks. At the same time though political concerns are on the rise. More than 40 percent of consumers now list the U.S. political environment as a major worry. That's slightly up from last month; and not surprisingly concern around geopolitical conflicts has also jumped from a month ago.

Now, when we break this down by income levels, we see some interesting trends. Inflation is the top concern across all income groups, except for those earning more than $150,000. For them, politics takes the top spot. Lower income households, though, are more focused on paying rent and debts, while higher income groups are more concerned about their investments.

As for tariffs, concern remains high but stable. About 40 percent of consumers are very worried about tariffs and another 25 percent are moderately so. But if we look under the surface, it's really showing us a political divide. 63 percent of liberals are very concerned, compared to just 23 percent of conservatives who say they're very concerned.

Despite these worries, though, fewer people overall are planning to cut back on spending. Only about a third say they'll spend less due to tariffs, which is down quite a bit from earlier this year. Meanwhile, about a quarter plan to spend more, and roughly a third don't expect to change their plans at all.

This resilience points to the notable behavioral trend I mentioned at the start. Consumers are not just reacting, they're adapting. Looking at the broader economy, consumer confidence is holding steady according to our survey, although it's slightly down from last month. But when it comes to household finances, the outlook is more positive with a significant number expecting their finances to improve and fewer expecting them to worsen – a net positive.

Savings are also showing some resilience. The average consumer has several months of savings, slightly up from last year. Spending intentions are stable with nearly a third of consumers planning to spend more next month while fewer planned to spend less. And when it comes to big ticket items, more than half of U.S. consumers are planning a major purchase in the next three months, including vehicles, appliances, and vacations.

Speaking of vacations, summer travel season is here and I'm looking forward to taking a trip soon. Around 60 percent of consumers are planning to travel in the next six months, with visiting friends and family being the top reason.

So, what's the biggest takeaway for investors?

Despite ongoing concerns about inflation, politics and tariffs, U.S. consumers are showing remarkable resilience. It's a nuanced picture, but one that overall suggests stability in the face of uncertainty.

Thanks for listening. I hope you enjoyed the show, and if you did, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

For a special Independence Day episode, our Head of Corporate Credit Research considers a popular topic of debate, on holidays or otherwise – national debt.

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Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Head of Corporate Credit Research at Morgan Stanley.

Today on a special Independence Day episode of the podcast, we're going to talk a bit about the history of U.S. debt and the contrast between corporate and federal debt trajectories.

It's Thursday, July 3rd at 9am in Seattle.

The 4th of July, which represents the U.S. declaring independence from Great Britain, remains one of my favorite holidays. A time to gather with friends and family and celebrate what America is – and what it can still be.

It is also, of course, a good excuse to talk about debt.

Declaring independence is one thing, but fighting and beating the largest empire in the world at the time would take more than poetic words. The borrowing that made victory possible for the colonies also almost brought them down in the 1780s under a pile of unsustainable debt. It was a young treasury secretary Alexander Hamilton, who successfully lobbied to bring these debts under a federal umbrella – binding the nation together and securing a lower borrowing cost. As we'd say, it's a real fixed income win-win.

Almost 250 years later, the benefits of that foresight are still going strong, with the United States of America enjoying the world's largest economy, and the largest and most liquid equity and bond markets. Yet lately there's been more focus on whether those bond markets are, well, too large.

The U.S. currently runs a budget deficit of about 7 percent of GDP, and the current budget proposals in the house and the Senate could drive an additional 4 trillion of borrowing over the next decade above that already hefty baseline. Forecast even further out, well, they look even more challenging.

We are not worried about the U.S. government's ability to pay its bills. And to be clear, in the near term, we are forecasting at Morgan Stanley, U.S. government yields to go down as growth slows and the Federal Reserve cuts rates more than expected in 2026. But all of this borrowing and all the uncertainty around it – it should increase risk premiums for longer term bonds and drive a steeper yield curve.

So, it's notable then – as we celebrate America's birthday and discuss its borrowing – that it's really companies that are currently unwrapping the presents. Corporate balance sheets, in contrast, are in very good shape, as corporate borrowing trends have diverged from those of the government.

Many factors are behind this. Corporate profitability is strong. Companies use the post-COVID period to refinance debt at attractive rates. And the ongoing uncertainty – well, it's kept management more conservative than they would otherwise be. Out of deference to the 4th of July, I've focused so far on the United States. But we see the same trend in Europe, where more conservative balance sheet trends and less relative issuance to governments is showing up on a year-over-year basis. With companies borrowing relatively less and governments borrowing relatively more, the difference between what companies and the government pay, that so-called spread that we talk so much about – well, we think it can stay lower and more compressed than it otherwise would.

We don't think this necessarily applies to the low ratings such as single B or lower borrowers, where these better balance sheet trends simply aren't as clear. But overall, a divergent trend between corporate and government balance sheets is giving corporate bond investors something additional to celebrate over the weekend.

Thank you as always for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen, and also tell a friend or colleague about us today.