Thanksgiving turkey with a side of contradiction Thanksgiving turkey with a side of contradiction http://www.federatedhermes.com/us/static/images/fhi/fed-hermes-logo-amp.png http://www.federatedhermes.com/us/daf\images\insights\article\thanksgiving-dinner-party-small.jpg November 26 2025 November 26 2025

Thanksgiving turkey with a side of contradiction

The economy is strong and inflation is declining, so why is confidence falling? 
Published November 26 2025
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The longest government shutdown in history ended a fortnight ago, and just in time. The American Automobile Association (AAA) projects a record 82 million Americans will be traveling at least 50 miles from home over Thanksgiving week. For those driving, gas prices are down 7% from earlier this year. For those hosting, the American Farm Bureau Federation reports that Thanksgiving dinner will be 5% less expensive this year than last. The economy’s raking, people are spending and inflation is easing. Yet business and consumer confidence has dropped. Why?

Strong Back-to-School (BTS) season Due to the 43-day shutdown, the US Commerce Department did not release the September retail sales report until yesterday. Nominal sales rose a softer-than-expected 0.2% month-over-month (m/m) (consensus at 0.4%) versus 0.6% m/m increases in August and July and a strong 1.0% gain in June. But BTS is a four-month season measured from June through September, and retail sales over this entire period rose by a three-year high of 4.5% year-over-year (y/y), nearly double last year’s 2.3% gain. That’s on top of the strong 5.0% y/y increase in “Marpril” sales during the Easter and Passover season this year, which was also a three-year high, versus a 3.0% gain in March and April combined last year. 

As we look ahead to Christmas, the National Retail Federation (NRF) is expecting a sales gain of 3.7% to 4.2% during November and December, versus 4.3% in those two months last year. We define the holiday shopping season more broadly as the four months from October through January. Sales in that period rose 4.0% y/y from 2024. Despite the well-documented bifurcation between high- and low-end consumers, we expect a solid holiday shopping season driven by the beneficiaries of the wealth effect sprung from elevated stock and home prices. 

Don’t need the GDP report to know the US economy is strong From a disappointing decline of 0.6% in this year’s first quarter, gross domestic product (GDP) growth rebounded to a powerful increase of 3.8% in the second quarter. Because of the government shutdown, third quarter GDP won’t be reported until December 23, nearly two months behind schedule. But the Atlanta Fed’s GDPNowcast projects a robust gain of 4.0%. The six-week shutdown will cost the economy an estimated 1.3% of GDP growth in the fourth quarter, but we expect the lost growth will be balanced by an increase in early 2026.

Inflation easing After spiking to multi-year highs in 2022, inflation has declined to more normal levels recently: 

  • Producer Price Index (PPI) Core wholesale inflation plummeted from a record high of 9.7% in March 2022 to a 17-month low of 2.6% in September 2025.
  • Consumer Price Index (CPI) Core retail inflation plunged from a 40-year high of 6.6% in September 2022 to a four-year low of 2.8% in March through May 2025. Inflation has risen to 3.0% in September 2025, which the Federal Reserve believes was likely a one-time impact from President Trump’s trade and tariff policies. 
  • Personal Consumption Expenditures (PCE) index The Fed’s preferred core inflation metric plummeted from a 39-year high of 5.6% in September 2022 to a four-year low of 2.6% in April 2025. It rose to 2.9% in August 2025, likely due to tariffs, a level that is expected to be unchanged in September. 

Pessimism reigns Despite this good economic news, business and consumer confidence has declined sharply this year: 

  • Conference Board’s Consumer Confidence Index From a 16-month high of 112.8 in November 2024, this metric has fallen to a seven-month low of 88.7 in November 2025.
  • NFIB Small Business Optimism Index From a six-year high of 105.1 in December 2024, this metric has dropped to a six-month low of 98.2 in October 2025. 
  • University of Michigan Sentiment Index From an eight-month high of 74.0 in December 2024, this survey has declined to a three-year low of 51.0 in November 2025, above its record low of 50 in June 2022. 

Could it be our politics? Michigan also measures consumer sentiment by political parties. In November 2025, sentiment by those who identified as Republicans was high at 86.6 compared to 32.4 for Democrats. That’s a marked reversal from August 2024, when Democratic sentiment was elevated at 90.9 and Republican sentiment sat at 47.4. We’re living in such a politically polarizing environment today that our mood — and our economic outlook — shifts dramatically, depending upon which party controls the levers of power in Washington. 

Keep Thanksgiving dinner civil So, as we approach this week’s Thanksgiving holiday, let’s pledge to leave our politics at the doorstep when we sit down at the dinner table. Next Tuesday is “Giving Tuesday,” and Thanksgiving is a wonderful opportunity to remember those of us who are less fortunate. Please consider participating in a Thanksgiving food drive at a church, temple, food bank or community center. Volunteer at a soup kitchen. Make a difference. Charity is a terrific way to celebrate the season. 

Happy Thanksgiving, everyone!

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Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

The National Federation of Independent Business (NFIB) conducts surveys monthly to gauge how small businesses feel about the economy, their situation and their plans.

Consumer Price Index (CPI): A measure of inflation at the retail level.

Personal Consumption Expenditures Price Index (PCE): A measure of consumer inflation at the retail level that takes into account changes in consumption patterns due to price changes.

Producer Price Index (PPI): A measure of inflation at the wholesale level.

The Conference Board's Consumer Confidence Index measures how optimistic or pessimistic consumers are about the economy.

The University of Michigan Consumer Sentiment Index is a measure of consumer confidence based on a monthly telephone survey by the University of Michigan that gathers information on consumer expectations regarding the overall economy.

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