Consumer sentiment in the United States has been tumbling, and Goldman Sachs thinks it knows why the gloom refuses to lift.
The consumer sentiment index tracked by the University of Michigan hit record lows this year, falling 13% year over year in September alone.
That monthly drop included a decline of almost 8% from August, signaling a sharp and accelerating deterioration in how Americans feel about the economy.
Economists have long puzzled over why sentiment has remained so depressed since the Covid pandemic, even as key economic indicators continued to perform well on paper.
Goldman economist Joseph Briggs told clients this week that the persistent downward pressure on sentiment may stem from broader pessimism spreading across American society.
“Low reported economic sentiment likely reflects a more fundamental, downbeat assessment of the state of the world rather than the economy,” Briggs wrote to clients.
Briggs acknowledged that inflationary pressures are also likely hurting confidence, but argued that “lower happiness” at large can partially explain the disconnect between sentiment and stronger economic measures.
Those stronger measures include gross domestic product growth and stock market performance, both of which have continued to paint a rosier picture than consumer surveys suggest.
Briggs pointed to data from the University of Chicago’s General Social Survey showing that happiness never fully recovered from its pandemic-era drop.
The share of respondents feeling “very happy” fell to 23% in 2024 from 31% in 2016, while the percentage reporting “not too happy” rose from 13% to 20% over the same period.
Briggs also found that overall happiness declined more sharply than the perception of financial satisfaction tracked within the same survey, suggesting the malaise runs deeper than wallet concerns.
Briggs is not alone in drawing this connection, as Joanne Hsu, the director of Michigan’s survey, told CNBC earlier this year that the downtrend in sentiment mirrors both decreasing happiness and declining trust in public institutions.
Briggs separately cited the link between lower happiness readings and eroding institutional trust, finding that distrust caused a “disproportionate amount” of the decline in net happiness in recent years.
Because consumer sentiment now appears tied to non-economic variables, Briggs warned it may not improve even if the economy continues its current trajectory.
As a result, Briggs suggested that consumer sentiment may become a less reliable predictor of actual economic dynamics going forward.
