Tax season gave American consumers one last gift, and now the credit card statement has arrived in the form of gasoline averaging $4.25 a gallon nationwide. This week’s data told the story of an economy with a split personality: business investment humming along like a well-tuned engine, while the consumer starts to sputter. The Conference Board’s confidence measure fell for the first time since the onset of the US/Israel-Iran war and savings rates sank to levels not seen since 2022, yet the labor market continues to hold firm. Understanding which of these signals matters most is the challenge of the moment.

Executive Summary

• The Conference Board’s consumer confidence index fell to 93.1 from 93.8 in April, the first decline since the war began, while year-ahead inflation expectations held at an elevated 6.2%.
• April consumer spending rose 0.5% in nominal terms but only 0.1% in real terms, with gasoline accounting for roughly a quarter of the nominal increase. The personal savings rate fell to its lowest level since 2022.
• Headline durable goods orders jumped 7.9%, driven by Boeing, while underlying capital goods shipments rose 0.4%, pointing to business equipment investment growth near 7% annualized in Q2.
• Initial jobless claims edged up 5,000 to 215,000, and continued claims rose 15,000 to 1.786 million, suggesting claims may have found a floor after months of trending lower.
• The S&P CoreLogic Case-Shiller national home price index held at 0.7% year-over-year growth in March, while the Federal Housing Finance Agency (FHFA) index rose 0.1% month-over-month and 1.7% year-over-year.

The Consumer: When the Sugar High Fades
For the past few months, a historically generous tax refund season acted as a kind of financial aspirin, masking the headache of higher energy costs. That aspirin has worn off. The Conference Board’s consumer confidence index slipped to 93.1 in May from an upwardly revised 93.8 in April, the first outright decline since the US/Israel-Iran war began. Year-ahead inflation expectations held at 6.2% for a third consecutive month, up from 5.5% in February, and the gap between consumers calling jobs plentiful versus hard to get narrowed to 6.9 points from 7.5 in April.

The April spending data filled in the picture. Nominal consumer spending rose 0.5%, but gasoline accounted for roughly a quarter of that increase, which is a bit like celebrating a raise that goes entirely to your landlord. In real terms, spending edged up just 0.1%. The personal savings rate fell to its lowest level since 2022, a sign that some households are dipping into savings to keep up with the cost of filling the tank and buying groceries.

Through the end of May, individual income tax refunds ran $51 billion, or 18%, above last year, reflecting the boost from the One Big Beautiful Budget Act (OBBBA). That tailwind is now behind us. Oxford Economics pegs consumption growth at 1.9% for 2026, down from 2.6% in 2025, though a sharp rebound in equity markets over recent months cushions the blow for higher-income households. The K-shaped split that has defined this cycle is deepening, with upper-income consumers propped up by portfolio gains while lower-income households absorb the gasoline tax that nobody voted for.

• Key Takeaway: The tax refund cushion has run its course, and higher gasoline prices are now hitting consumer spending where it counts. The divide between upper- and lower-income households continues to widen.

Business Investment: The Economy’s Bright Spot
If the consumer is the economy’s worried passenger, business investment is the driver with both hands on the wheel. Headline durable goods orders surged 7.9% in April, with a strong month of Boeing net new orders pushing transportation and the headline measures higher. The more meaningful signal came from non-defense capital goods orders excluding aircraft, which dipped 1.1% after two consecutive months of solid gains, while shipments in the same category, which feed directly into GDP, rose 0.4%.

Oxford Economics’ tracker points to business equipment investment rising close to 7% annualized in Q2, a step down from the blistering 17% gain in Q1 but still a pace that most economies would envy on their best day. Think of it as downshifting from fifth gear to fourth; the car is still moving fast.

Two forces are doing the heavy lifting. The continued rapid buildout of artificial intelligence (AI) infrastructure, along with associated data center and power-grid spending, keeps order books full. The OBBB provisions for full upfront expensing of equipment investment give firms a strong incentive to pull capital expenditures forward. The energy shock and Iran war uncertainty have trimmed some froth from the edges of capital goods orders, but neither has dented the fundamental appetite for investment spending. That said, if the conflict drags on and energy costs remain elevated, even the most eager capital spenders may start to reassess their timelines.

• Key Takeaway: Business equipment investment remains one of the fastest-growing components of the economy, fueled by AI demand and tax incentives, though the pace has moderated from Q1’s exceptional clip.

The Labor Market: Steady Hands on a Shaky Table
Initial jobless claims rose 5,000 to 215,000 in the week ended May 23, a shade above the consensus estimate of 213,000 but hardly cause for alarm. On an unadjusted basis, claims tracked 9.1% below year-ago levels, a gap that suggests employers are still reluctant to hand out pink slips despite three months of war, elevated inflation and lingering tariff uncertainty.

Continued claims rose 15,000 to 1.786 million in the week ended May 16, though the prior week saw an 11,000 downward revision. After trending lower for several months, both initial and continued claims appear to have found a floor and may move sideways from here. That is not a sign of deterioration; it is more like a car that has coasted downhill and reached flat ground. The labor market is no longer improving at the margins, but it is not rolling backward either.

Looking ahead to next week’s May employment report, Oxford Economics looks for a gain of 80,000 in nonfarm payrolls, a slowdown from April but still a healthy number. One wrinkle worth watching: household employment, which captures self-employment and agricultural jobs, has declined by an average of 158,000 per month over the last three months. That divergence between the payroll and household surveys bears monitoring. Oxford Economics sees the unemployment rate hovering in the 4.3% to 4.4% range through year-end, held in check by slower labor-force growth from reduced immigration and an aging population.

• Key Takeaway: The labor market remains healthy enough to give the Federal Reserve cover to hold policy steady, but the divergence between payroll and household employment data warrants close attention.

Housing: A Tale of Two Zip Codes
National home price data for March told a story of stabilization with an asterisk. The S&P CoreLogic Case-Shiller national index slipped 0.2% month-over-month, while year-over-year growth held at 0.7%, unchanged from February. Among the 20 metros tracked by the 20-city index, annual price changes ranged from a decline of 2.5% in Seattle to a gain of 6.1% in Chicago, a spread wide enough to make the national average almost meaningless. The FHFA house price index edged up 0.1% month-over-month and 1.7% year-over-year.

Looking ahead, base effects that dragged on annual price growth over recent months have shifted and should support modestly stronger year-over-year figures through early summer. The more interesting development is happening at the regional level. Markets in the South and West that saw the biggest inventory buildups are now correcting. Florida’s housing supply fell 12% year-over-year in April, a dramatic reversal from the 35% increase recorded a year earlier. That kind of swing suggests the worst of the oversupply pressure in those markets may be passing.

New-home sales, meanwhile, came in on the soft side, and the near-term outlook remains constrained by elevated mortgage rates and builders’ gradual pullback from price concessions. The housing market resembles a bathtub with the faucet barely running and the drain partly open: not emptying, not filling, just sitting at a tepid level that satisfies nobody.

• Key Takeaway: National home price growth has stabilized, and regional oversupply pressures are beginning to ease, but elevated mortgage rates continue to keep the housing market in a holding pattern.

Inflation and the Fed: Still Sitting in the Waiting Room
The headline Personal Consumption Expenditures Price Index (PCE) deflator crept up to 3.8% in April, while core PCE continues to track close to 3%. Neither number gives the Federal Reserve much to celebrate. First-quarter GDP growth took a revision down to 1.6% from the initial estimate of 2.0%, reflecting weaker consumer services and business software spending than the advance release had assumed. The economy is growing, but at a pace that feels like walking uphill in sand.

On the energy front, oil prices have fallen more than 20% from their recent peak, but it looks like it could take through the end of the year for traffic through the Strait of Hormuz to return to pre-war levels. That means households should brace for elevated gasoline prices through the summer driving season and into the fall, a longer stretch of pain than earlier estimates suggested.

The Fed, for its part, appears content to sit and wait. The claims data and broader labor indicators give the committee enough comfort to hold policy steady while it focuses on the inflation side of its dual mandate. Financial markets continue to price in a rate hike, but that seems unlikely as the Fed would need to see a meaningful acceleration in services inflation to justify tightening. In other words, the Fed is still sitting in the waiting room, but the magazine selection just got a little better.

• Key Takeaway: Inflation remains sticky, but recession odds are easing and the Fed has enough labor market support to remain patient. The bar for a rate hike remains high, and the bar for a cut is not getting any lower.

Final Thoughts
This week’s data drew a clear line between two very different stories playing out in the same economy. On one side, businesses continue to invest aggressively, drawn by AI demand and generous tax provisions. On the other, the American consumer is starting to feel the pinch as the tax refund cushion evaporates and gasoline costs remain stubbornly high. The savings rate falling to its lowest level since 2022 is not a statistic to dismiss lightly; it signals that households are stretching to maintain their standard of living.

The labor market, once again, sits at the center of the story. Claims data suggest a floor has formed rather than a springboard for further improvement, and the divergence between payroll and household employment measures adds a layer of ambiguity to what otherwise looks like a healthy picture. The Conference Board confidence decline, modest as it was, reminds us that consumer perception can shift quickly once the real-world effects of higher prices start to bite.

Recession odds have eased and the corporate investment cycle has legs, but the consumer is the swing factor. If spending slows more than the current trajectory suggests, the feedback loop into hiring and confidence could tighten faster than the aggregate data implies. The two-speed economy has room to run, but how long the weaker engine can keep up with the stronger one is the question that matters most heading into the summer months.

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