Goldman Sachs says one possible reason U.S. consumer sentiment remains weak is a decline in overall happiness. In a note to clients, bank economist Joseph Briggs said poor sentiment readings may reflect a broader gloomy view of the state of the world rather than the economy alone.
The consumer sentiment index tracked by the University of Michigan has fallen to record lows this year. In September, the index was down 13% from a year earlier, including an almost 8% drop from August alone.
Economists have long questioned why sentiment has stayed depressed since the Covid pandemic even as several macroeconomic indicators have painted a firmer picture. Briggs said part of that disconnect can be explained by “lower happiness,” while inflation pressures are also still weighing on confidence.
According to Briggs, weak economic sentiment likely reflects “a more fundamental, downbeat assessment of the state of the world” rather than just the economy. In his view, that helps explain why consumer sentiment has diverged from measures such as gross domestic product growth or stock market performance, which have looked more upbeat.
Briggs pointed to data from the University of Chicago’s General Social Survey showing that happiness never fully recovered after its pandemic-era drop. The share of respondents who said they were “very happy” fell to 23% in 2024 from 31% in 2016. Over the same period, the share saying they were “not too happy” rose from 13% to 20%.
Goldman Sachs said the decline in overall happiness has been sharper than the deterioration in perceived financial satisfaction, which is also tracked in the survey. Briggs also drew a link between lower happiness and falling trust in public institutions, arguing that weaker trust accounted for a “disproportionate amount” of the decline in net happiness in recent years.
A similar view has also been expressed by Joanne Hsu, director of the Michigan survey. Earlier this year, she told CNBC that the downtrend in sentiment mirrors data showing declines in both happiness and trust in public institutions.
Briggs said that if consumer sentiment is being driven in large part by non-economic factors, it may fail to improve even if the economy continues to expand steadily. In that case, the indicator could become less useful as a guide to broader economic dynamics.
