Goldman Sachs Links Weak US Consumer Sentiment to Falling Happiness Levels

Consumer confidence in the United States has fallen to troubling lows even as economic indicators suggest steady growth. Goldman Sachs economists have identified a key reason behind this puzzling trend: a significant decrease in overall happiness among Americans.

The University of Michigan's consumer sentiment index, a widely followed gauge of economic confidence, dropped sharply this year. In September, the index declined 13 percent compared to the same month last year, including an 8 percent fall from August alone. This persistent weakness in sentiment has left many economists searching for explanations since the Covid-19 pandemic ended.

Joseph Briggs, an economist at Goldman Sachs, shared insights with clients this week suggesting that the low consumer sentiment numbers go beyond typical economic concerns. He argued that many Americans are expressing a broader sense of pessimism about the state of the world, which is reflected in their outlook on the economy.

"Low reported economic sentiment likely reflects a more fundamental, downbeat assessment of the state of the world rather than the economy," Briggs wrote. While inflation and rising prices for essentials such as gas and groceries remain a factor that pressures confidence, Briggs emphasized that a general decline in happiness could explain why sentiment remains out of step with other positive economic measures like GDP growth and stock market gains.

Supporting this perspective, Briggs pointed to data from the University of Chicago's General Social Survey. The survey reveals that the proportion of people describing themselves as "very happy" fell from 31 percent in 2016 to just 23 percent in 2024. Meanwhile, those reporting they were "not too happy" increased from 13 percent to 20 percent over the same period. Interestingly, the drop in overall happiness outpaced declines in feelings of financial satisfaction, highlighting that the causes stretch beyond personal finances.

Other experts have also noted similar trends. Joanne Hsu, director of the University of Michigan’s consumer sentiment survey, told CNBC earlier this year that the downward shift in sentiment closely tracks falling happiness and eroding trust in public institutions. Briggs also drew a link between decreased happiness and reduced confidence in institutions, finding that distrust in these entities has contributed disproportionately to the drop in net happiness in recent years.

This complex interplay of economic and social factors suggests that consumer sentiment may not rebound quickly even if the economy continues to perform well. Briggs warned that the usual relationship between sentiment surveys and economic trends might weaken, meaning consumer confidence readings could become less reliable as indicators of economic health.

Understanding the forces behind consumer sentiment is crucial because it influences spending, investment, and economic growth. The current disconnect between positive economic data and negative public mood poses challenges for policymakers and businesses alike. As inflation pressures ease and employment remains stable, economists will be watching whether improvements in happiness and trust can help restore consumer confidence.

The ongoing affordability concerns reported by many Americans, such as difficulties affording necessities like gasoline and groceries, also play a role in dampening sentiment. A recent poll by The Guardian found that 95 percent of Americans believe the country is experiencing an affordability crisis, underscoring the financial strains felt by households despite overall economic resilience.

In summary, while traditional economic metrics show the US economy maintaining momentum, consumer sentiment remains subdued largely due to broader societal factors like declining happiness and trust. This nuanced reality highlights the importance of looking beyond numbers to understand the full picture of economic wellbeing.