In a note to clients this week, Goldman Sachs economist Joseph Briggs said the funk in consumer sentiment seems less a purely economic tale and more a reflection of a broader societal gloom. Inflation still plays a role in damping confidence, he said, but he argued that "lower happiness" helps explain why sentiment keeps lagging brighter indicators such as GDP growth and stock performance. In his words, "Low reported economic sentiment likely reflects a more fundamental, downbeat assessment of the state of the world rather than the economy."
Briggs leaned on the University of Chicago's General Social Survey. In his analysis, overall happiness slid more than the survey's separate read on how financially satisfied people feel.
The University of Michigan's consumer sentiment index has been at record lows this year. In September, it was 13% lower than a year earlier, driven by an almost 8% drop from August. Earlier this year on CNBC, Joanne Hsu, who directs the Michigan survey, said the multi year decline in sentiment aligns with metrics that indicate declines in both happiness and trust in public institutions.
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Briggs also highlighted a link between lower happiness and falling trust in institutions, finding that reduced trust accounted for a "disproportionate amount" of the drop in net happiness in recent years. Because these are non economic forces, he said consumer sentiment might not rebound even if the economy keeps chugging along, which could make the gauge a less useful guide to what happens next. Translation: the vibes may stay out of step with the data for a while, so pay attention to actual spending and hiring trends more than the mood music.
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