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 regain a sense of economic well-being. The latest preliminary reading from the University of Michigan Surveys of Consumers in May plunged to all-time lows, underscoring a persistent lack of confidence in the U.S. economy that has lingered since the onset of the Covid-19 pandemic over six years ago. This sentiment is not an isolated finding; it is echoed across multiple consumer opinion surveys, painting a consistent picture of an American public that has yet to shake off its economic anxieties.
Economists attribute this enduring pessimism to a confluence of factors, primarily the lasting impact of years of rapid price increases, even as the annual inflation rate has shown signs of cooling. Beyond inflation, Americans have endured a relentless barrage of economic disruptions, from the initial shock of the pandemic to ongoing geopolitical conflicts and the trade policies enacted in the current decade. This continuous cycle of uncertainty has left consumers feeling battered and financially insecure.
"It’s a series of shocks," observed Yelena Shulyatyeva, senior economist at the Conference Board, which conducts another prominent gauge of economic confidence. "Consumers don’t get a break." This sentiment encapsulates the feeling of being under constant economic pressure, with little respite to allow for financial recovery or renewed optimism.
The Lingering Pain of Elevated Prices
While economists and monetary policymakers traditionally focus on the year-over-year inflation rate, which has moved closer to the Federal Reserve’s target of 2% than to the four-decade highs experienced during the pandemic, consumers’ perceptions are shaped by a different metric: the cumulative increase in prices over the past several years. This sustained upward trend in the cost of everyday goods and services has created a significant psychological impact.
Cleveland Fed President Beth Hammack highlighted this disconnect, noting that the cumulative price increases over the last few years feel like a decade’s worth of inflation compressed into half the time. Shoppers, she explained, are keenly aware of the significant jump in the cost of essential items. "People are starting to hear that inflation is going down, but their box of cereal is still really expensive," remarked Kyla Scanlon, an economic commentator known for coining the term "vibecession." This tangible reality of higher prices, despite moderating inflation rates, contributes to a pervasive sense of financial hardship. "That feels really, really bad," Scanlon added, underscoring the emotional toll of persistent price hikes.
A data analysis by PNC Financial Services indicates that the significant increase in prices has been the primary driver behind the decline in consumer sentiment observed between 2019 and 2026. This analysis also suggests that the persistent sticker shock has caused a divergence between models of economic conditions and actual consumer sentiment in recent years. The way consumers are thinking about inflation has fundamentally shifted. The proportion of respondents in the University of Michigan’s survey who reported hearing negative news about price growth or attributed their pessimistic outlook to it surged dramatically after the pandemic began in 2020. This amplified concern is further evidenced by Google searches for the term "inflation," which reached all-time highs earlier this year, demonstrating its prominence in the public consciousness. "No one cared about inflation until it became a problem," stated Brian LeBlanc, PNC’s senior economist. "Now, it’s something that everybody in the country is thinking about."
A Relentless Barrage of Economic Shocks
The prolonged absence of a rebound in consumer confidence can also be attributed to the sheer volume and proximity of economic disruptions. Consumers have had little time to recover from one significant shock before another emerges, creating a sustained environment of uncertainty.
"I can’t think of a period where you’ve had shocks like these," commented Eric Winograd, chief economist at AllianceBernstein, a former alumnus of the New York Federal Reserve Bank. While acknowledging that the magnitude of individual events might vary, he emphasized the extreme rarity of experiencing so many sequential economic jolts. For consumer sentiment to truly recover, Winograd suggested, U.S. households would need to experience several quarters of consistently positive and stable economic conditions. However, this has been far from the reality. Geopolitical conflicts, trade disputes, and other unforeseen events have consistently presented consumers with the "opposite" of stability, as noted by Francesco D’Acunto, a finance professor at Georgetown University.
The decline in consumer sentiment appears to be part of a broader trend that has impacted other key indicators of societal well-being. Trends in reported happiness and trust in public institutions over the current decade have also shown significant deterioration, mirroring the dip in economic confidence. Joanne Hsu, director of the University of Michigan’s survey, observed, "Consumer sentiment isn’t the only thing that really breaks around the pandemic." This suggests a systemic erosion of optimism and trust, extending beyond purely economic considerations.
The Paradox of Spending Amidst Pessimism
Despite the consistently negative sentiment expressed in surveys, American consumers, in aggregate, have continued to spend with remarkable vigor. Companies like Uber and Walt Disney recently reported strong customer spending in their latest earnings calls, defying expectations that shoppers would significantly curtail their expenditures in response to rising prices and economic uncertainty. This disconnect between sentiment and spending behavior presents a significant puzzle for economists.
"The traditional correlation between sentiment and spending has largely broken down," explained Gregory Daco, chief economist at the consulting firm EY-Parthenon. He suggests that the current economic landscape is so unique that traditional analytical models may need to be adapted. "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."
Consequently, Winograd advises investors to monitor the directional changes in confidence indexes rather than relying on historical comparisons to pre-pandemic levels for insights into consumer behavior. He posits that consumer opinion, while still a factor, has become a lower-tier economic data point for traders making investment decisions. This is underscored by the fact that the S&P 500 reached an all-time high on the same day the University of Michigan released its record-low consumer sentiment reading. The benchmark stock index has seen a remarkable surge of approximately 130% since the beginning of 2020, while the Michigan sentiment gauge has halved, falling by 52% during the same period. This divergence highlights the complex interplay of factors influencing different economic indicators. "If this is the new normal, then this is the new normal," Winograd concluded. "The question is: Are things getting better or worse?"
A Resilient Consumer, But Under Pressure
In the immediate future, the outlook for consumer sentiment improvement remains dim. Several economists predict that sentiment will likely stagnate or decline further as oil prices remain elevated above $100 a barrel, a direct consequence of the ongoing conflict in Iran. The national average price for a gallon of gasoline has already surpassed the $4 mark, a threshold identified in a 2022 AAA survey as the point at which a majority of Americans begin to implement lifestyle changes to cope with the increased cost. Gasbuddy, a platform that tracks fuel prices, reported a near doubling of its daily active user base in March as the war intensified, indicating a heightened consumer awareness and concern about fuel costs.
The impact of these rising energy prices is already being felt across various sectors. Whirlpool, a major appliance manufacturer, reported a "recession-level" decline in appliance demand, attributing it directly to cratering consumer confidence stemming from the Middle East conflict. Similarly, McDonald’s CEO Chris Kempczinski warned analysts that customer spending could face a downturn as rising gas prices continue to pressure household budgets.
The trajectory of the job market will also play a crucial role in shaping consumer perceptions and behavior. Recent government data revealed that the U.S. job market expanded more than anticipated in April, maintaining a "low-hire, low-fire" environment. While this indicates a degree of stability, the overall economic picture remains complex.
Despite these persistent uncertainties and their expressed gloomy outlook, American consumers, who are responsible for approximately two-thirds of all economic activity, are unlikely to falter entirely. "It’s a foolish man who bets against the U.S. consumer," Winograd asserted. "The base case has to be that the consumer continues to plug along." This enduring resilience, even in the face of significant headwinds, has historically been a defining characteristic of the American economy. The question remains, however, how long this resilience can be sustained without a tangible improvement in consumer confidence and a more stable economic environment. The coming quarters will be critical in determining whether the current disconnect between consumer sentiment and spending is a temporary anomaly or a fundamental shift in economic behavior.
