Episode summary
What to Watch Ahead of the Midterms
Thoughts on the Market (Morgan Stanley)
· · 7 min · Hosts: Ariana Salvatore, Michelle Weaver
Summary
Consumer sentiment is improving gradually, but it remains negative overall. A proprietary monthly survey of about 2,000 U.S. consumers showed the net outlook score rising to -10% from -14% a month earlier, while inflation stayed the top concern at 60% of respondents. Spending plans are steady: households expect to spend more on essentials like groceries, gas, and household items, but less on discretionary categories, with consumer electronics the weakest area because higher memory-chip costs are pushing prices up.
The guest argued that consumers are unlikely to get major new policy relief before November because another direct stimulus package faces procedural, political, and deficit-related obstacles. The host tied that to Morgan Stanley’s broader economic view that 2026 consumer growth has turned more neutral, with real consumption expected to slow to about 1.7% after last year’s fiscal boost was largely offset by the oil shock.
The discussion emphasized a clear income split. Upper-income consumers remain relatively optimistic, while lower- and middle-income households are under more pressure because energy takes a bigger share of their budgets. On elections, the guest said the latest data point slightly favor Republicans on the economy, but other indicators still give Democrats a modest overall advantage heading into November, with primary turnout and candidate selection potentially adding more political noise.
Key takeaways
- A monthly survey of about 2,000 U.S. consumers showed sentiment improving, with the net outlook score rising to -10% from -14% a month earlier.
- Inflation remained consumers’ top concern at 60%, while concern about the U.S. political environment rose to 42%.
- The guest expects no major new consumer stimulus before the midterms because deficit concerns and legislative hurdles make another reconciliation package unlikely.
- Morgan Stanley’s economics view is that 2026 real consumption growth slows to about 1.7%, with the oil shock offsetting last year’s fiscal boost.
- The guest said the economy’s improvement may modestly help Republicans, but Democrats still retain a slight overall advantage heading into November.
Notable quotes
“Our survey recently showed a continued gradual recovery in consumer competence in the US economic outlook”
“Inflation is still the number one concern for consumers and we actually saw the percent of consumers citing it among their top concerns tick up again last month”
“we don't expect something additional for the consumer through the legislative angle aside from what we've already seen like the road to housing act”
“Real consumption growth is still expected to decelerate to about 1.7%”
“we definitely still see a slight advantage for democrats heading into November”
How the episode opens
Welcome to Thoughts on the Market. I'm Ayanna Salvatore, Morgan Stanley's head of public policy research. And I'm Michelle Weaver, Morgan Stanley's US thematic strategist.
Today we'll be talking about the consumer and what recent data could imply for the midterm elections. It's Wednesday, July 1st at 10:00 a.m. in New York.
Last week, Mike Zesus and I caught up on the consumer while he was down at our consumer captain's conference. This week, Michelle, I want to talk to you about what your data are saying and get into the implications of all of this for the midterm elections. So, maybe we start with the Alpha Wise data.
What are our surveys picking up when it comes to how the consumer feels about the outlook in the aggregate? We run a monthly proprietary survey of around 2,000 US consumers, and it's diversified by age, gender, and region, and we ask questions around sentiment, spending plans, and other special topics. Our survey recently showed a continued gradual recovery in consumer competence in the US economic outlook.
We're not off to the races by any means, but we did see the net outlook score improve to -10% up from -14% a month ago and a low of -8% 2 months ago when concerns around oil prices were at their peak. Overall, more consumers feel negatively about the economy versus positively. Hence, that net score is negative.
But we are seeing signs of improvement. So things are improving on a rate of change basis.
That makes sense given theou that was signed between Iran and the US. Now looking forward, what does the survey tell us about spending plans? Broadly, consumer spending plans remain stable. They expect to spend more on essentials categories. This includes things like groceries, gas, and household items, while they're expecting to spend less on discretionary categories.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- midterms
- consumer trends
- prices
- economy
- elections
Watch the episode
Watch “What to Watch Ahead of the 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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