Consumer Confidence, Fed Policy & GDP: What Secondary Indicators Reveal in February 2026
Consumer sentiment sits at 64.7, the Fed holds rates at 4.50%, and GDP growth has slowed to 2.1%. Plus: JPMorgan's recession model has climbed to 35%. A deep dive into the signals behind the headlines.
Beyond the Headlines
While primary indicators track the structural backbone of the economy — yield curves, employment, industrial output — secondary indicators tell us how people and institutions are reacting. Consumer confidence, Fed policy, housing, and business sentiment are the transmission mechanisms that turn slow deterioration into actual contraction.
In February 2026, the secondary picture is consistently cautious. No indicator is screaming panic, but none are screaming confidence either.
Consumer Sentiment: 64.7 — Warning Territory
The University of Michigan Consumer Sentiment Index has fallen to 64.7, firmly in warning territory. The recessionary threshold is 60 — we're close.
This matters because consumer spending is roughly 70% of U.S. GDP. When consumers are pessimistic, they pull back on discretionary spending, delay large purchases, and increase precautionary saving (if they can). The problem is that many can't — more on that in the credit section.
The current reading of 64.7 is notable because it's persisted below 70 for months, which suggests this isn't a sentiment dip but a sustained shift in expectations. Consumers are telling us they expect worse conditions ahead.
Historical context: Consumer sentiment fell below 65 before the 2001 and 2008 recessions. It's not a perfect predictor — sentiment dropped sharply during the 2022 inflation scare without a recession — but when paired with weakening labor internals, it carries more weight.
Fed Funds Rate: 4.50% — Still Restrictive
The Fed holds rates at 4.50%, well above the neutral rate most economists estimate at 2.5–3.0%. This means monetary policy is still actively slowing the economy.
The critical question: will the Fed cut before the lag effects of high rates cause real damage?
Historical precedent isn't encouraging. The Fed has a pattern of holding rates too high for too long, then cutting aggressively once the damage is visible — by which point the recession is already underway. The 2007 and 2019 cutting cycles both began after leading indicators had already turned.
Markets are currently pricing in 3–4 cuts by year-end 2026, starting in Q2. If the Fed delivers, it could short-circuit the recession risk. If they wait for "more data," the window for a soft landing closes.
Verdict: The rate itself isn't dangerous — it's the duration of restrictive policy that creates risk.
GDP Growth: 2.1% — Slowing but Positive
Real GDP growth has slowed to 2.1%, down from 2.8% in 2024. The Atlanta Fed GDPNow tracker shows real-time growth at 1.8%, below consensus.
Growth is positive, which is the good news. But the trajectory matters more than the level. The economy is decelerating, and the deceleration is broadening — it's not just one sector dragging things down.
Key concern: GDP is a lagging indicator. By the time GDP turns negative, you're typically already 2–3 months into a recession. The leading indicators we track (LEI, yield curve, temp jobs) are designed to catch the turn before GDP does.
JPMorgan Recession Probability: 35%
JPMorgan's proprietary recession model now estimates a 35% probability of recession within 12 months, up from roughly 25% in mid-2025.
For context, this model exceeded 50% before both the 2001 and 2008 recessions. At 35%, we're in the "elevated risk" zone — not a base case, but well above the 10–15% probability that prevails during healthy expansions.
The climb from 25% to 35% in six months is the trend worth watching. If it crosses 40% in the next quarter, markets will likely begin pricing recession risk more aggressively.
Housing: The Slow-Motion Squeeze
Housing is a reliable leading indicator because it's the most rate-sensitive sector:
- Building Permits: 1,483K — Below trend and at the lowest level since pandemic-era shutdowns. This signals that homebuilders are pulling back on new projects, which means less construction employment and spending downstream.
- Housing Starts: 1,366K — Down 9.8% from the prior month. Starts typically lead the broader economy by 3–5 quarters.
Verdict: Housing isn't crashing — it's seizing up. And a seized housing market eventually becomes a drag on GDP through reduced construction, lower consumer wealth effects, and declining durable goods demand.
The Secondary Verdict
Secondary indicators confirm the message from the primary dashboard: the economy is late-cycle and decelerating. Consumer confidence is weak, monetary policy is still restrictive, GDP is slowing, housing is frozen, and Wall Street's recession models are climbing.
None of these individually guarantees a recession. But collectively, they describe an economy with diminishing resilience — one where a single shock (geopolitical event, financial accident, trade disruption) could tip the balance.
The overarching theme: the economy isn't broken, but its shock absorbers are depleted.
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