Markets

Why US Consumers Are Downbeat Despite a Healthy Economy

Cost-of-living pressures are weighing on US households. However, the downbeat sentiment about the economy among Americans is so widespread that it suggests something else may also be at work, explains Joseph Briggs, who leads the Global Economics team within Goldman Sachs Research. He says the reason may be a broad decline in trust in US institutions. Data show a significant gap between consumer surveys and the sentiment levels that economic models would predict. This suggests that current sentiment survey readings “probably won’t be a very useful tool for economic analysis,” Briggs says.

Transcript:

Joseph Briggs: Americans feel worse about the economy than the numbers suggest they should. The question is why?

If we look at the consumer sentiment level we’d expect given the fundamentals – a healthy labor market, solid consumer spending, GDP growth – and then the actual average sentiment level, there’s quite a gap.

Some of the reasons are intuitive. Cost-of-living pressures, where are most acutely felt by lower-income households, are a main one.

But what's striking is that since 2019, just about every group has become more negative on the economy. Whether you look at wealth, income, age, political party, or even social media use, sentiment is down.

Americans have become more downbeat overall surveys show. And that in turn is increasingly correlated in declining confidence in institutions.

Over the last ten years, almost all of them have seen a drop from science to education, to medicine. So, the final question we ask is what weights more on Americans’ happiness: their level of financial satisfaction or their lack of confidence in institutions?

And our analysis shows it’s much more a fundamental, downbeat view on institutions and the state of the world.

So as long as consumer sentiment doesn’t really reflect sentiment about the economy, well, it probably won’t be a very useful tool for economic analysis.

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