Goldman Sachs says a broader decline in happiness, not the economy itself, is driving weak consumer sentiment readings. The University of Michigan's sentiment index has fallen sharply even as growth and markets hold up, and Goldman ties the gap to shrinking happiness and trust in institutions.
Consumer sentiment keeps sliding even as the broader economy holds together, and Goldman Sachs says the reason has little to do with growth numbers. Goldman economist Joseph Briggs told clients this week that a more fundamental drop in societal happiness, not the economy, likely explains the disconnect.
Sentiment index hits record lows
The consumer sentiment index tracked by the University of Michigan hit record lows this year. The index fell 13% year over year in September, including a drop of almost 8% from August alone. Economists have widely questioned why sentiment has stayed depressed since the Covid pandemic even as the economy hummed along on paper.
Briggs said inflationary pressures are likely also weighing on confidence. But he said lower happiness at large can partially explain why sentiment keeps lagging other measures of the economy's performance, such as GDP growth or stock market performance, that show a rosier picture.
Happiness fell further than financial satisfaction
Briggs pointed to data from the University of Chicago's General Social Survey showing happiness never fully recovered from a drop during the pandemic. The share of respondents feeling "very happy" fell to 23% in 2024 from 31% in 2016, survey data shows, while the share reporting "not too happy" rose from 13% to 20% over the same period. Overall happiness declined more sharply than financial satisfaction also tracked in the survey, according to Briggs' analysis.
Briggs isn't alone in pointing to happiness. Joanne Hsu, director of Michigan's survey, told CNBC earlier this year that the sentiment downtrend mirrors readings showing both decreasing happiness and falling trust in public institutions.
Sentiment may lose its predictive power
Briggs also linked lower happiness to decreasing trust in institutions, finding that reduced trust caused a disproportionate share of the decline in net happiness in recent years. Given the tie to these non-economic variables, he said consumer sentiment readings may not improve even if the economy keeps expanding. As a result, sentiment could become a less useful predictor of economic dynamics going forward.
Source: CNBC
Trading involves risk.
Risk Disclaimer
