U.S. consumer sentiment dropped sharply in August and September amid lingering affordability concerns and elevated inflation expectations. Economists at Goldman Sachs suggest the persistent disconnect between solid economic indicators and sour consumer mood may stem from a broader post-pandemic decline in general happiness and trust in public institutions.
The Growing Gap Between Economic Data and Consumer Sentiment
On paper, the American economy continues to expand at a steady pace. Gross domestic product growth and stock market performance present a notably rosier view of financial health than what households report experiencing day-to-day. Yet consumer confidence remains deeply depressed, hitting record lows this year across major tracking metrics.
The University of Michigan consumer sentiment index fell 13% year over year in September, driven down by an almost 8% drop from August alone, according to data highlighted by Goldman Sachs economist Joseph Briggs. In a separate monthly reading, the index stood at 51.7 in August, down roughly 11% compared to the same month last year. That persistent weakness leaves economists searching for explanations beyond traditional household balance sheets.
Briggs told clients that traditional economic indicators fail to capture the full picture of public morale. Low reported economic sentiment likely reflects a more fundamental, downbeat assessment of the state of the world rather than the economy,
Briggs wrote in a note to clients.
How Declining Happiness and Institutional Trust Shape Public Mood
To understand why confidence remains low, analysts are increasingly looking at non-economic variables such as societal well-being and public trust. Data from the University of Chicago General Social Survey shows that happiness levels never fully recovered from a sharp drop during the Covid-19 pandemic.
The share of survey respondents reporting they are very happy
fell to 23% in 2024 from 31% in 2016, while the percentage of respondents answering that they are not too happy
rose from 13% to 20% over the same period. Briggs noted that overall happiness saw a much sharper decline than perceptions of personal financial satisfaction within the same data set.
Joanne Hsu, director of the University of Michigan surveys of consumers, observed earlier that the downward trend in sentiment mirrors broader readings showing decreasing happiness alongside falling trust in public institutions. Briggs added that lower trust in these bodies accounted for a disproportionate share of the recent drop in net happiness.
This sociological shift carries real consequences for macroeconomic forecasting. If public sentiment is driven more by broader social attitudes than by household income or employment, sentiment indices may fail to improve even if the underlying economy continues chugging along, potentially rendering the metric a less reliable forecaster of economic dynamics.
Persistent Inflation Worries and Pressured Cost of Living
Even with societal pessimism playing a prominent role, immediate financial pressures remain entirely real for everyday shoppers. A Guardian poll cited in market reporting indicates that 95 percent of Americans think the United States is in the midst of an affordability crisis, with many households reporting ongoing struggles to afford basic necessities like groceries and gasoline.
Hsu noted that the August sentiment declines were visible across all political groups and were particularly acute among Republicans. Vulnerable populations face the steepest psychological toll: older consumers, lower- and middle-income buyers, and individuals with no stock holdings exhibited the sharpest drops in sentiment as they absorbed rising costs of living.
Inflation expectations remain a driving force behind the caution. Although year-ahead inflation expectations ticked down from 4.2% to 4.0%, that figure still substantially exceeds the 3.4% recorded in February before the conflict involving Iran began. Long-run inflation expectations held steady at 3.3% for the third consecutive month, remaining slightly higher than the 2024 range of 2.8% to 3.2%.
Meanwhile, policy uncertainty and geopolitical tensions continue to cloud the outlook. Expected year-ahead business conditions fell 10%, accompanied by a 13% drop over a five-year horizon, as consumers anticipate further increases in gasoline prices both in the short and long run and potential trade re-escalations.