The economy is showing real signs of strength — or, rather, everything is in the gutter. Either can be true, depending on where you look. These days, consensus is hard to come by.

How can you make sense of it all? The topline metrics, like employment and wages, are telling an encouraging story, one of strong performance and consistent growth. But at the same time, real GDP in the United States shrank in Q1 2025 at an annual, seasonally adjusted rate of -0.3%. This decrease was driven by high imports and lower government spending. 

To be sure, the signals we’ve received from the American economy are anything but consistent. The only thing we’re certain about is that everything is uncertain. In environments like these, how can retail leaders find clarity to make informed decisions? It helps to fully understand the disconnect between perception and reality — and then to focus your attention in the right areas.

Amid all the uncertainty, what’s driving those positive indicators?

Despite all the noise around the performance of the economy, retail sales (aggregated across industries) are strong. According to data from the Federal Reserve, retail spending has increased by about 15% overall since January 2018, adjusting for seasons and inflation. 

As we take a closer look, we see that growth is being driven primarily by high-income and middle-income consumers. On the other hand, spending by low-income consumers, defined as those making less than $60,000 per year, has been flat over the past four years. Reports from retailers themselves confirm those findings — Walmart, Aldi and Dollar Tree each confirmed that high-income households are making up growing shares of their customer bases.  

Another testament to the strength of the American economy is the labor market, which has proven to be resilient. Today, we’re seeing low unemployment at 4.2%; healthy wage growth, with a 2.2% inflation-adjusted increase year-over-year in Q4 2024; and a decline in the number of credit card delinquencies, which had a minor peak in 2024. 

Finally, inflation and interest rates are stubbornly high, but tempering. The Fed has signaled its intention to make two rate cuts in 2025; reduced interest rates increase purchasing power and often provide a boost to spending. 

The perception-reality disconnect 

Despite all of those positive indicators, the Consumer Sentiment Index was down nearly 32% in April 2025. That may seem surprising, but it reflects an important disconnect: even though people are earning and spending more, they still feel uncertain or pessimistic about the economy. In other words, their perception doesn’t match reality. 

That gap between how people feel and how they are actually behaving — continuing to spend, for example — makes it harder to use sentiment alone to gauge economic activity. It’s one reason why the Consumer Sentiment Index has become an increasingly unreliable measure of economic activity. It tells us more about public mood than actual purchasing behavior.

A better measure of household stress might be the Barro Misery Index. It combines four measures of household economic well-being: inflation, unemployment, interest rates, and real GDP declines.

Based on this measure, economic “misery” over the past 15 years was at its highest during the onset of the COVID-19 pandemic. After peaking, it subsided drastically, before reaching a lower peak towards the end of 2022. 

Today, misery is on an upward trajectory. At the same time, though, consumers are still spending — just moving with more caution and exhibiting more cross-shopping behavior.  

Where retail leaders should be looking

Just as economists need to focus on the right metrics, retailers do, too. Many business leaders will zero in on headline metrics like revenue and foot traffic, though the data shows those figures can be misleading — especially in a high-inflation, high-competition market like the one we’re in now.

The primary problem with those metrics is that “good” numbers can hide concerning trends, ones that become apparent when you adjust for inflation. 

As an example, let’s look at figures for convenience stores. Over the past two years, revenue per transaction inside the c-store is up slightly, increasing by 1.8% since 2023. Adjusting for inflation, though, we see that same metric is actually down by almost 5% over the same time period. 

It’s the same story with daily c-store revenue per station. Over the past two years, daily revenue has been roughly flat, but inflation-adjusted average daily revenue is down by more than 7%. 

That same disconnect between headline metrics and true demand exists outside, too. In 2025, average daily fuel transactions per station are down 5% over the past two years. When you look at average daily gallons sold, though, the decrease is greater at 5.5%.  This is because there are more stations competing for limited fuel demand.

So if these headline metrics aren’t the right ones to watch, then which ones are?

What retailers should actually watch

If topline growth numbers can be misleading, retail leaders should pivot to tracking true demand, economic context, and consumer behavior.

What does that look like specifically? Let’s use fuel and c-store as an example once more. In 2025, these are the metrics that matter for these retailers:

• Inflation-adjusted revenue, not just dollar sales
• Volume of gallons sold, not just fuel transactions
• Average c-store basket size, not just number of transactions
• Cross-shopping frequency, to gauge how often your customers visit competitors
• Barro Misery Index, as a consumer outlook indicator

This is a tough moment for retailers, to be sure. The economic signals are mixed, and headline numbers don’t tell the full story. But with the right metrics and strategies in place, leaders can make sense of the noise and stay ahead of shifting consumer behavior.

Upside analyzes millions of transactions and surveys thousands of consumers and retailers annually. Want the latest insights from this exclusive data? Visit our blog to get the information you need to make data-driven decisions.