Episode summary
Consumer Confidence and the U.S. Midterms
Thoughts on the Market (Morgan Stanley)
· · 10 min · Hosts: Ariana Salvatore, Michael Zezus
Summary
The host and a guest focused on how consumer resilience is starting to split by income, with lower-income households showing more substitution and selectivity while higher-income spending has held up better. They linked that pressure to last year’s tariff effects and to recent higher gas prices tied to Middle East conflict, while arguing that policy relief could help stabilize demand.
On tariffs, the guest said the broad picture looks more stable than many fear. USMCA is expected to remain largely intact, while the bigger question is how the administration replaces temporary tariff authority with section 232 and 301 measures. The guest said that could create some pockets of escalation, but the headline tariff rate may stay around 8% to 9% and perhaps drift a bit lower through the year.
They also discussed the recent decline in oil prices and the Iran-related ceasefire as a possible support for consumers, while stressing execution risk, congressional pushback, and the short timeline for negotiations. Finally, they said artificial intelligence has become a broader macro issue: AI-related buildout is boosting investment and employment, but possible political backlash around data centers and regulation could matter for companies and investors heading into November.
Key takeaways
- The guest said lower-income consumers are showing the clearest signs of strain, with more substitution and selectivity than higher-income households.
- The guest expects the U.S. tariff rate to stay around 8% to 9% on a headline basis, with only modest directional easing.
- The guest said USMCA looks more like continuity than disruption, limiting the risk of a broad re-escalation in North American trade costs.
- The host said lower tariffs and cheaper gasoline could help inflation cool into year-end and support second-half consumer demand.
- The guest said AI infrastructure spending is helping the economy, but the political debate over data centers could become a national issue before November.
Notable quotes
“rising concern about lower income consumers behavior starting to lag in meaningful way higher income consumers behavior”
“we think the direction of travel is relatively stable if not slightly lower because as you mentioned the AIPA tariffs that were replaced by the section 122s have to get replaced again end of July”
“the tariff rate stay somewhere around 8 to 9% on a headline basis if not directionally maybe a little bit lower throughout the course of this year”
“markets are definitely seeing this as a welcome development, but that doesn't mean it's without execution risk”
“This year a lot of the discussion is actually about the macro trend around artificial intelligence”
How the episode opens
Welcome to Thoughts on the Market. I'm Ariana Salvatore, Morgan Stanley's US public policy strategist. — And I'm Mike Ziz, deputy global head of research. — Today, we'll be discussing the consumer outlook, policy catalyst, and what it could mean for the 2026 midterm elections. It's Thursday, June 25th at 9:00 a.m. in New York. So, Mike, you're on the road, obviously not in New York City this week. Why don't you tell us a little bit about the conference that you're at and then we can get into some of the topics that have come up in your conversations?
Yeah, I'm down in South Carolina at Morgan Stanley's captains of the consumer industry conference where we put together investors and leadership of key consumer companies in the US to learn about each other in a more informal way, brainstorm and it's been really interesting. You've had a lot of meeting with leadership from different prominent consumer companies throughout the US and it's been really fascinating to hear how the consumers been quite resilient but in general one pattern that sticks out is rising concern about lower income consumers behavior starting to lag in meaningful way higher income consumers behavior you're starting to see substitution and sort of more selectivity amongst lower inome households. A pattern that began a bit last year as a lot of these companies would report with higher tariffs that seems to have continued with higher gas prices driven by the conflict in the Middle East.
So there's a lot of discussion and concern about how durable it is and in particular if there are some policy choices here that might alleviate some of that pressure and bring some fundamental strength to what is a challenge segment of the consumer market right now.
Let's talk a little bit more about tariffs.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- consumer confidence
- consumer outlook
- u.s. midterms
- november elections
- consumer spending
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Watch “Consumer Confidence and the U.S. Midterms” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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