Consumers grow more concerned about jobs than inflation

Article originally posted on CoStar on September 17, 2025

A weakening labor market is making consumers increasingly worried about their continued employment prospects, while higher prices are making it more difficult for some to make ends meet, adding to crumbling sentiment and threatening their ability to weather leaner times.

A handful of recent surveys reveals the growing unease, after the release last week of revisions to payroll growth that wiped away more than half of the jobs initially estimated by the Bureau of Labor Statistics to have been added between March 2024 and March 2025.

Moreover, hiring levels have slowed, and surveys show consumers are more concerned about the probability of a layoff and more pessimistic about their ability to quickly find another job.

Respondents to the most recent University of Michigan Consumer Sentiment Survey place the probability of a layoff in the next five years at higher than 20%, near the all-time highs reached during the coronavirus pandemic and subsequent lockdown in 2020.

In the Federal Reserve Bank of New York’s Survey of Consumer Expectations for August, respondents rated their probability of finding a new job within three months after a layoff at less than 45%. That represented a 6-percentage-point drop between July and August, and was the most pessimistic reading in more than 12 years since the bank has conducted the monthly survey.

Hard data supports the downward turn in sentiment, as July’s Job Openings and Labor Turnover Survey reported that the number of job openings fell below the number of unemployed people for the first time since early 2021.

Notably, the deterioration in job market expectations has been most severe among the highest earners, reflecting flat hiring conditions in the tech and professional services sector and the perceived impact of artificial intelligence on administrative knowledge roles.

Though workers earning more than $100,000 have typically been the most optimistic regarding prospects of landing a job within three months of a layoff, that shifted in August’s New York Fed survey. Those high-earners projected a 45.9% chance of a quick rehire in August, down 8 percentage points from July and 9.5 percentage points from January. The lowest-paid workers, those making under $50,000 annually, were even more pessimistic and projected a 37.6% chance of a quick rehire, down 9 percentage points since January.

Still, middle-income respondents’ confidence in being rehired has remained remarkably stable at 50.2%, down only 0.4 percentage points since January. This may reflect the stability of hiring in the non-cyclical and middle-wage education and healthcare sectors.

Middle-wage workers were also the least pessimistic about looming layoffs. University of Michigan survey respondents with incomes in the top third estimated a 23.5% probability of a layoff in the next five years, up 4.3 percentage points since January. By comparison, middle-income respondents projected an 18.5% chance of job loss, up 2 percentage points since January. Lower-income respondents showed the most stable responses, projecting a 22.2% chance of an impending layoff, up about 1.7 percentage points since January.

The rollout of widespread reciprocal tariffs earlier in the year had focused consumers’ attention on the potential for new price increases and sent inflation expectations surging in April and May, but more recent readings have moderated.

University of Michigan respondents now expect 4.8% inflation over the next year, down from 6.6% in May, but still up from 2.7% in January. New York Fed respondents, who remained more subdued, expect 3.2% inflation, down from 3.6% in May but up from 3% in January. The most recent consumer price index showed a 2.9% year-over-year increase in all prices in August and a 3.1% annual increase when excluding the volatile food and energy categories.

The shift in consumer concern from inflation to the job market, particularly among the highest-earning consumers, should draw attention to the coming release of consumer spending data later this month. Consumer spending outperformed expectations in July, growing by an inflation-adjusted 0.3%. However, the highest-income households have driven an increasing share of consumer spending, so confidence among this group could be key for continued economic growth.

The Federal Reserve faces the unenviable task trying to boost economy activity and hiring by lowering its policy interest rate, while not stimulating business so much that it reaccelerates inflation already running higher than policymakers’ target.

With the recent revisions of jobs data, markets are widely expecting the Fed to lower rates at upcoming meetings by 75 basis points in total this year, and further to return to its neutral rate, or the rate that neither stimulates the economy nor restrains it, by the third quarter next year, provided that inflation stays within the range it has been for the past year or so. If not, policy choices may become far more complicated.