Goldman Sachs has identified a surprising culprit behind persistently poor consumer sentiment readings: a broad societal decline in happiness.
The consumer sentiment index tracked by the University of Michigan hit record lows this year, falling 13% year over year in September alone.
That monthly drop included a decline of almost 8% from August, underlining how sharply confidence has deteriorated despite a broadly resilient economic backdrop.
Economists have long puzzled over why sentiment has remained so depressed since the Covid pandemic, even as key economic indicators continued to perform well on paper.
Goldman economist Joseph Briggs told clients this week that the downward pressure on sentiment may stem from a deeper, more fundamental pessimism spreading across society.
“Low reported economic sentiment likely reflects a more fundamental, downbeat assessment of the state of the world rather than the economy,” Briggs wrote to clients.
Briggs acknowledged that inflationary pressures are also likely hurting consumer confidence, but argued that “lower happiness” at large can partially explain the disconnect.
That disconnect sits between sentiment readings and rosier indicators such as gross domestic product growth and stock market performance, which continue to paint a more positive picture.
Briggs pointed to data from the University of Chicago’s General Social Survey, which shows that happiness never fully recovered from the sharp drop experienced during the pandemic.
The share of respondents feeling “very happy” fell to 23% in 2024 from 31% in 2016, while those reporting “not too happy” rose from 13% to 20% over the same period.
Crucially, overall happiness saw a sharper decline than the perception of financial satisfaction also tracked within the same survey, according to Briggs’ analysis.
Briggs is not alone in drawing this conclusion, with Joanne Hsu, the director of Michigan’s survey, telling CNBC earlier this year that the downtrend mirrors decreasing happiness and trust in public institutions.
Briggs also identified a direct connection between lower overall happiness readings and a declining trust in public institutions across the United States.
He found that lower trust in these bodies caused a “disproportionate amount” of the decline in net happiness recorded in recent years.
Given the strong connection to these non-economic variables, consumer sentiment may not improve even if the broader economy continues to perform well, Briggs warned.
As a result, he suggested that consumer sentiment could become a less reliable predictor of economic dynamics going forward, complicating how analysts and policymakers interpret the data.