American consumers have been mired in a state of financial pessimism for an extended period, prompting economists to question when, or even if, households will experience a genuine sense of improved financial well-being. This pervasive sentiment is starkly reflected in recent economic indicators, most notably the University of Michigan Surveys of Consumers, which reached all-time lows in May according to preliminary readings. This dismal figure is not an anomaly but rather part of a broader trend observed across multiple consumer opinion surveys, indicating that Americans have not recaptured their pre-pandemic confidence in the U.S. economy since the onset of the Covid-19 crisis more than six years ago.
The lingering impact of sustained economic disruptions, coupled with the persistent memory of rapid price increases, appears to have deeply scarred the American consumer. Even as the annual inflation rate shows signs of cooling, economists explain that consumers are primarily focused on the cumulative price hikes experienced over the past several years. This prolonged period of economic turbulence, encompassing the pandemic, international conflicts, and significant trade policy shifts, has created a relentless barrage of challenges that have worn down consumer confidence.
"It’s a series of shocks," commented Yelena Shulyatyeva, senior economist at the Conference Board, an organization that also tracks economic confidence. "Consumers don’t get a break." This sentiment underscores the feeling of relentless adversity that many Americans have endured, preventing any sustained period of relief or optimism.
The Enduring Pain of Price Levels
While economists and monetary policymakers traditionally monitor inflation on a 12-month rolling basis, which currently shows figures closer to the Federal Reserve’s 2% target than the four-decade highs seen during the pandemic, the consumer perspective is markedly different. Shoppers are keenly aware of the aggregate increase in prices since 2019. Cleveland Fed President Beth Hammack highlighted this disconnect, stating that the cumulative effect has been akin to a decade’s worth of inflation compressed into half that time.
This perception is widely shared. Kyla Scanlon, an economic commentator and originator of the term "vibecession," articulated the consumer experience vividly: "People are starting to hear that inflation is going down, but their box of cereal is still really expensive. That feels really, really bad." This tangible impact on everyday goods makes the abstract economic data on cooling inflation feel irrelevant to many households.
A data analysis by PNC Financial Services corroborates this observation, identifying high prices as the primary driver behind the significant decline in consumer sentiment between 2019 and 2026. The bank’s findings also suggest that sticker shock has disrupted the traditional correlation between economic models and consumer sentiment. Consumers are increasingly vocal about the role of inflation in their daily lives. Data from the University of Michigan’s survey reveals a sharp increase in respondents attributing their negative outlook to price growth or negative news about inflation, particularly after the pandemic began in 2020. This heightened awareness is further reflected in Google search trends, which show a surge in the term "inflation" to all-time highs earlier this year, indicating its pervasive presence in public consciousness. Brian LeBlanc, PNC’s senior economist, noted, "No one cared about inflation until it became a problem. Now, it’s something that everybody in the country is thinking about."
A Cascade of Economic Shocks
Beyond the persistent impact of inflation, economists point to another critical factor hindering the rebound of consumer confidence: the lack of adequate recovery time between successive economic jolts. Eric Winograd, chief economist at AllianceBernstein and a former official at the New York Federal Reserve Bank, described the current economic landscape as unprecedented in its sequence of disruptive events. "I can’t think of a period where you’ve had shocks like these," he stated. "I’m not saying that these are the biggest in magnitude, but to have this many sequential events is extremely unusual."
For consumer sentiment to genuinely recover, according to Francesco D’Acunto, a finance professor at Georgetown University, the U.S. economy would need to experience several consecutive quarters of positive and stable conditions. However, the prevailing environment, marked by escalating geopolitical conflicts and the continuation of protectionist trade policies, has delivered the "opposite" to consumers, D’Acunto observed. This continuous stream of negative external factors prevents the establishment of a stable economic foundation upon which consumer confidence can be rebuilt.
The pervasive gloom in consumer sentiment also appears to be mirrored in broader societal indicators. Trends in reported happiness levels and trust in public institutions have also seen significant declines this decade, suggesting a more widespread erosion of optimism. Joanne Hsu, director of the University of Michigan’s survey, noted that consumer sentiment is not an isolated phenomenon but part of a larger pattern of psychological and social disruption that has emerged around the pandemic era.
The Paradox of Spending: Open Wallets Despite Gloomy Views
Despite the consistently pessimistic sentiment reported by consumers, their actual spending behavior presents a compelling paradox. Broadly speaking, Americans have continued to open their wallets with considerable vigor. Companies like Uber and Walt Disney recently reported robust customer spending in their latest earnings calls, defying earlier fears that shoppers would significantly curtail their expenditures in response to persistent price increases.
Gregory Daco, chief economist at consulting firm EY-Parthenon, highlighted this divergence, stating, "The traditional correlation between sentiment and spending has largely broken down. We have to depart a little bit from the traditional analysis of these gauges because of the unique circumstances that we’re currently living through." This suggests that traditional economic indicators may not fully capture the complexities of the current consumer landscape.
Consequently, AllianceBernstein’s Winograd advises investors to monitor the direction of confidence indexes rather than relying on pre-pandemic comparisons for assessing consumer behavior. He views consumer opinion as a secondary economic data point for traders making investment decisions in the current environment. This shift in analytical focus is further underscored by the performance of the stock market. The S&P 500 reached an all-time high on the same day the Michigan survey reported record-low consumer sentiment. Since the start of 2020, the benchmark stock index has surged approximately 130%, more than doubling its value, while the Michigan sentiment gauge has plummeted by 52%. This stark contrast between financial market performance and consumer sentiment raises questions about the future trajectory of the economy. Winograd concluded, "If this is the new normal, then this is the new normal. The question is: Are things getting better or worse?"
A Resilient Consumer Faces Near-Term Headwinds
In the immediate future, economists anticipate that consumer sentiment is unlikely to see significant improvement, largely due to persistent geopolitical tensions and their impact on commodity prices. The ongoing Iran War has kept oil prices elevated, exceeding $100 a barrel. This has contributed to a national average gasoline price that has surpassed $4 per gallon, a threshold identified in a 2022 AAA survey as the point at which a majority of Americans begin to alter their lifestyle choices. Data from Gasbuddy, a fuel price tracking platform, indicates a near doubling of its daily active user base in March as the conflict intensified, illustrating the direct impact of rising fuel costs on consumer behavior and awareness.
The ripple effects of these higher energy prices are being felt across various sectors. Whirlpool reported a "recession-level" decline in appliance demand, directly attributing it to cratering consumer confidence stemming from the Middle East conflict. Similarly, McDonald’s CEO Chris Kempczinski cautioned analysts that rising gas prices are putting pressure on consumers’ discretionary spending, potentially impacting sales.
The trajectory of the job market will also play a crucial role in shaping consumer sentiment and behavior. Recent government data indicated that the U.S. job market expanded more than anticipated in April, while maintaining a pattern of "low-hire, low-fire," suggesting a stable but not overly dynamic labor environment.
Despite these ongoing uncertainties and their prevailing gloomy outlook, the resilience of American consumers, who are responsible for approximately two-thirds of all economic activity, is unlikely to falter. Winograd remains optimistic about the fundamental strength of the consumer, concluding, "It’s a foolish man who bets against the U.S. consumer. The base case has to be that the consumer continues to plug along." This assertion suggests that while sentiment may remain subdued, the underlying capacity and propensity to spend by American households will continue to drive economic activity. The challenge for policymakers and analysts alike will be to navigate this complex environment where expressed pessimism does not fully translate into a contraction of economic output. The enduring question remains whether the current sustained period of low consumer confidence represents a temporary anomaly or a fundamental shift in how Americans perceive their financial security in an increasingly volatile global landscape.
