The University of Michigan has been conducting a Consumer Sentiment Index since 1966.
The Index of Consumer Expectations seeks to find how consumers view three things:
- Their own financial situation
- The short-term general economy
- The long-term general economy
The index is normalized with a value of 100 equal to the consumer sentiment in the first quarter of 1966 when the first survey of consumers was conducted.
I have followed the Consumer Sentiment Index for a number of years but recently I have begun questioning how much validity it has.
Is it truly measuring consumer sentiment or has it become nothing more than a tool that reflects back political sentiment from an increasingly divided body politic?
Consider the most recent release.
The Consumer Sentiment Index for May, 2026 is reported to be the lowest it has been in the 60 years it has been tracked with a value of 44.8.
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| Source: https://www.sca.isr.umich.edu/ |
That is driven in large part by the consumer viewing current economic conditions as the worst it has been since 1966.
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| Source: https://www.sca.isr.umich.edu/ |
Think about that.
That is lower than during any recession the last 60 years.
Lower than the 1979-1981 period when we had double digit inflation for three consecutive years.
Lower than the early 1980's when mortgage rates hit 18%.
Lower than the period between late 1982 and early 1983 when the employment rate was more than 10%.
Lower than when the entire economy was shut down with Covid.
Lower than in 2022 when inflation was running at over 8% per year.
Let's compare that with actual facts and data on the economy right now.
The unemployment rate is 4.3%.
It is one of the better unemployment numbers in the last 50 years.
The inflation rate is 3.8%.
It has increased over the last two month due to gas prices but it is still substantially lower than it was four years ago.
The national average price for a gallon of gas on this Memorial Day weekend is $4.50 per gallon.
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| Source: https://www.gasbuddy.com/charts |
It was around $3.00 per gallon before the Iran conflict started.
However, gas prices surged to over 5.00 per gallon under Biden.
Prices were also $3.72 per gallon in 2012 under Obama.
As I pointed out in an earlier blog post, $3.72 per gallon adjusted for inflation would be $5.40 per gallon today.
We have a growing economy.
First quarter 2026 GDP increased from the last quarter of 2025.
It is also growing faster than almost the entire 2010-2020 period after we were coming out of the Great Recession.
There has not been a sustained recession (ignoring the self-inflicted Covid downturn) in the United States since 2009.
It is the longest period without a downturn in economic activity in United States history.
Consumer spending was up 0.9% in March and 0.6% in February.
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| Source: https://www.bea.gov/data/consumer-spending/main |
Even including increased gas prices in April, consumer spending growth was strong according to a Bank of America analysis.
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| Source: https://institute.bankofamerica.com/economic-insights/consumer-checkpoint-may-2026.html |
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| Source: https://institute.bankofamerica.com/content/dam/economic-insights/consumer-checkpoint-may-2026.pdf |
Think about what you see around you on a daily basis.
Do any of you go to restaurants, malls, Costco, the airport and other places that are not crowded with people spending money?
Finally, the stock market is at record highs.
The S&P 500 is up 26% in the last 12 months and 9% year-to-date.
How could consumer sentiments in the index regarding economic conditions be so far removed from reality?
A lot of it is tied to political sentiment.
Democrats thought the economy was doing great during the Biden administration.
A 100 index score quickly has become a 37 under Trump.
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| Source: https://en.macromicro.me/charts/110440/us-michigan-consumer-current-index-within-political-party |
At the same time, Republican voters gave economic conditions under a huge thumbs down under Biden which rebounded as soon as Trump was elected.
Notice how there has been a disparity in sentiment by party since political party association was first tracked by the University of Michigan Consumer Sentiment Survey beginning in 2017.
However, that disparity has gotten to be huge in the last three years.
The negative consumer sentiment also continues into expectations in the survey.
Consumer expectations for the future are also lower in the survey than at any time in the last 60 years other than the 1979-1981 period when we were in the midst of three consecutive years of double digit inflation and a recession on top of it---STAGFLATION.
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| Source: https://www.sca.isr.umich.edu/files/independents202605.pdf |
However, this data is still at odds with the reality of facts and data of current economic conditions.
Who could really argue that economic conditions today are worse than when Covid shut down the economy in 2020 and 2021 or when we had 8% inflation in 2022?
Something else is at work here.
My guess is that consumer sentiment ends up being more a reflection of the narrative created in the mainstream and social media rather than actual facts on the ground
What have been some of those narratives since Trump took office again in January, 2025?
Trump's tariffs are going to cause inflation.
Trump's tariffs are going to wreck the economy.
AI is going to put everyone out of work.
Data centers to run AI are going to consume all U.S energy energy and result in huge utility rate increases.
The Mideast is going to end up in all out war due to Trump standing up to Iran and gas prices will go through the roof.
Who is most susceptible to headlines like these?
Independent voters who do not pay as much attention to the issues and the context around them.
All that being said, the Michigan Consumer Sentiment Index findings right now should be a cautionary tale for all of us.
What have we become if sentiments and feelings override real facts?
What chance do we have if people ignore the reality that surrounds them but are willing to be manipulated by news headlines and social media?
Why can't we return to a point where we assess facts and make decisions based on the real world rather than our biased political leanings?
When political sentiments control anything and everything in a society you are on a slippery slope to a slow death.
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