American consumers have been mired in a state of prolonged pessimism, prompting economists to question when, or even if, households will regain a sense of financial well-being. Recent data from the University of Michigan Surveys of Consumers, a closely watched indicator of public sentiment, revealed all-time lows in May, according to preliminary figures released last week. This finding is not an isolated incident; it aligns with a broader trend across multiple consumer opinion surveys, indicating that Americans have yet to recover their confidence in the U.S. economy since the onset of the Covid-19 pandemic over six years ago.
Economists speaking with CNBC attributed this persistent despondency to the lingering effects of years of rapid price increases, even as the annualized inflation rate shows signs of cooling. Furthermore, Americans appear to be exhausted by a series of economic disruptions that have characterized the current decade, including the pandemic, global conflicts, and trade policies such as former President Donald Trump’s tariffs.
"It’s a series of shocks," commented Yelena Shulyatyeva, senior economist at the Conference Board, an organization that also conducts a prominent consumer confidence index. "Consumers don’t get a break." This sentiment underscores a critical disconnect between the theoretical economic indicators and the lived experiences of everyday Americans.
The Lingering Pain of Price Levels
While economists and monetary policymakers typically focus on the year-over-year inflation rate, which has moderated closer to the Federal Reserve’s 2% target from the four-decade highs seen during the pandemic, shoppers are acutely aware of the cumulative price increases over the past several years. Cleveland Fed President Beth Hammack highlighted this phenomenon, noting that the U.S. has experienced approximately a decade’s worth of inflation in half the time.
"People are starting to hear that inflation is going down, but their box of cereal is still really expensive," explained Kyla Scanlon, an economic commentator who popularized the term "vibecession." "That feels really, really bad," she added. This observation points to a significant psychological impact of persistent price hikes, where the memory of higher prices continues to weigh on consumer perception, irrespective of current inflation trends.
Analysis from PNC Financial Services indicates that the substantial rise in prices has been the primary driver of the decline in consumer sentiment between 2019 and 2026. The bank’s research further suggests that this "sticker shock" is the reason why economic condition models have diverged from consumer sentiment in recent years.
The increased salience of inflation in consumers’ minds is evident in survey data. The proportion of respondents in the Michigan survey who reported hearing negative news about price growth or attributed their downbeat outlook to it surged significantly after the pandemic’s commencement in 2020. Concurrently, Google searches for the term "inflation" reached all-time highs earlier this year, demonstrating its pervasive presence in public discourse.
"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." This shift in focus from abstract economic metrics to tangible personal finance concerns highlights a fundamental change in consumer awareness and priorities.
A Barrage of Economic Shocks
Beyond the persistent impact of inflation, economists point to another critical factor hindering the rebound in consumer confidence: the relentless succession of economic disruptions. Consumers have had little time to recover from one economic jolt before another emerges.
Eric Winograd, chief economist at AllianceBernstein and a former official at the New York Federal Reserve Bank, described the current period as having an unprecedented number of sequential shocks. While acknowledging that these may not be the largest in magnitude individually, their cumulative and overlapping nature is highly unusual.
To foster a recovery in sentiment, U.S. consumers would ideally need to experience several quarters of "positive" and "stable" economic conditions, according to Francesco D’Acunto, a finance professor at Georgetown University. Instead, the ongoing geopolitical conflicts and the continued pursuit of protectionist trade policies, such as higher tariffs, have presented consumers with the "opposite," D’Acunto noted.
This pattern of unrelenting negative news and economic instability is not confined to consumer sentiment alone. It mirrors broader trends observed in reported happiness levels and trust in public institutions throughout the decade. Joanne Hsu, director of the University of Michigan’s Survey of Consumers, observed that consumer sentiment is not the sole metric that has been significantly impacted since the pandemic.
The Paradox of Spending: Wallets Open Despite Gloom
Despite their expressed pessimism, 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 consumers would curtail their expenditures due to rising prices.
Gregory Daco, chief economist at EY-Parthenon, highlighted a significant breakdown in the traditional correlation between consumer sentiment and spending. He suggested that the unique circumstances of the current economic environment necessitate a departure from traditional analytical frameworks.
Consequently, Winograd advised investors to monitor the direction of confidence indexes rather than relying on pre-pandemic comparisons for insights into consumer behavior. He suggested that consumer opinion, while important, has become a lower-tier economic data point for traders making investment decisions.
This divergence is starkly illustrated by the S&P 500, which 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 surged approximately 130% since the beginning of 2020, while the Michigan sentiment gauge has fallen by 52%.
"If this is the new normal, then this is the new normal," Winograd remarked. "The question is: Are things getting better or worse?" This statement encapsulates the ongoing uncertainty and the challenge of interpreting current economic signals.
A Resilient Consumer Base Under Pressure
In the immediate future, economists predict that consumer sentiment is unlikely to see significant improvement, particularly as oil prices remain elevated above $100 a barrel, exacerbated by the ongoing conflict in Iran. The national average price for a gallon of gasoline has surpassed the $4 mark, a threshold identified in a 2022 AAA survey as the point at which a majority of Americans begin to alter their lifestyles. Gasbuddy, a fuel price tracking platform, reported a near doubling of its daily active users in March as the war intensified, indicating heightened consumer awareness and concern regarding fuel costs.
Whirlpool reported a "recession-level" decline in appliance demand last week, directly linking it to cratering consumer confidence stemming from the Middle East conflict. Similarly, McDonald’s CEO Chris Kempczinski cautioned analysts that customer spending could be negatively impacted as rising gas prices put further strain on household budgets.
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, though it still points to a "low-hire, low-fire" environment.
Despite these persistent uncertainties and their generally gloomy outlook, American consumers, who account for roughly two-thirds of all economic activity, are unlikely to falter entirely. As Winograd concluded, "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 underscores the fundamental resilience of the American consumer, even in the face of significant economic headwinds. The coming quarters will be crucial in determining whether this resilience can sustain spending patterns amidst ongoing global and domestic challenges.
