Americans are feeling increasingly gloomy about the economy, but Goldman Sachs says part of that pessimism may be coming from something that cannot be measured at the grocery store checkout or gas pump: declining happiness.
The University of Michigan’s closely watched Consumer Sentiment Index fell to a preliminary reading of 47.8 in September, down from 51.7 in August and 13.2% below its level a year earlier. The decline puts confidence back near the unusually weak levels reached earlier this year.
The numbers present economists with a complicated question. Americans remain deeply worried about prices and their purchasing power, yet some measures of economic activity have continued to show resilience.
Goldman Sachs economist Joseph Briggs argues that the disconnect may partly reflect a broader deterioration in how Americans feel about their lives and the world around them — rather than their finances alone.
In a recent analysis, Briggs said weak economic sentiment may reflect a broader negative assessment of conditions beyond the economy. Inflation remains an important factor, but his analysis suggests declining overall happiness can help explain why consumer confidence has remained unusually weak compared with measures such as economic growth and stock-market performance.
Happiness Has Fallen Beyond Financial Satisfaction
Briggs pointed to the University of Chicago’s long-running General Social Survey, which measures Americans’ attitudes on subjects including happiness and financial satisfaction.
The data show a significant deterioration in reported happiness over the past decade.
The share of respondents describing themselves as “very happy” fell to 23% in 2024 from 31% in 2016, while the share describing themselves as “not too happy” increased to 20% from 13%.
Importantly, Briggs found that overall happiness deteriorated more sharply than respondents’ assessments of their financial situations.
That distinction could help explain why traditional consumer-confidence surveys are painting a darker picture than some conventional economic statistics.
Declining trust in institutions may also be contributing. Briggs’s analysis linked falling institutional trust with a disproportionate share of the decline in reported happiness in recent years.
University of Michigan Surveys of Consumers Director Joanne Hsu has also pointed to the relationship between declining confidence, happiness and institutional trust.
But Household Costs Are Still a Major Problem
The happiness argument does not mean Americans’ financial concerns are imaginary.
The University of Michigan’s own September data show consumers are increasingly worried about pressure on their wallets.
Year-ahead inflation expectations jumped to 4.6% in September from 4.0% in August, according to the preliminary survey. Longer-term inflation expectations edged up to 3.4%.
The survey also found expectations for personal finances and near-term business conditions deteriorating sharply.
Those concerns follow years in which households have absorbed higher prices for housing, food, transportation, insurance and other necessities.
A separate Harris Poll conducted for The Guardian found 95% of U.S. adults believe the country is experiencing an affordability crisis. Other research has similarly found that many households remain concerned about their ability to comfortably pay for essentials.
That creates an important distinction: Americans can be experiencing genuine financial pressure while broader unhappiness simultaneously pushes confidence even lower.
Why It Matters for Businesses
For retailers, banks, employers and investors, the debate is more than academic.
Consumer sentiment has traditionally been watched as an early indicator of whether households are preparing to spend or pull back. When confidence falls, businesses may worry that shoppers will postpone major purchases, cut discretionary spending or increase savings.
But if today’s sentiment readings increasingly capture dissatisfaction extending beyond household finances, those surveys may become harder to interpret as stand-alone economic signals.
Recent spending data illustrate the disconnect.
U.S. retail sales rose 1.2% in August, while a closely watched measure of underlying retail activity increased 1.4%, indicating consumers were still spending even as confidence deteriorated.
That means businesses may need to watch what consumers do, not simply what they tell pollsters they feel.
Actual consumer spending, employment, wage growth, household income, credit-card activity and retail sales can provide additional evidence about whether pessimism is translating into changed economic behavior.
A Consumer Economy Caught Between Feelings and Spending
The divide leaves the U.S. economy in an unusual position.
Consumers are telling surveys they are deeply dissatisfied, inflation expectations are rising and affordability remains a widespread concern. At the same time, recent retail spending has remained resilient.
Goldman’s analysis suggests those two realities do not necessarily contradict one another.
Americans can continue going to restaurants, buying groceries, filling their cars and shopping online while simultaneously feeling increasingly pessimistic about their financial future and the broader state of the country.
The risk for businesses is what happens if those feelings eventually change behavior.
Persistent pessimism can encourage households to delay purchases or build precautionary savings even if their current income remains stable. If enough consumers make that decision simultaneously, weak sentiment can eventually contribute to weaker economic activity.
For now, however, the message for businesses is to treat consumer confidence as one part of a much larger picture.
Americans may be unhappy. They may also be struggling with higher everyday costs. And they may still be spending.
All three can be true at the same time.
JBizNews Desk | Wall Street
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