Take a moment to consider your financial situation: Are you better or worse off financially than you were a year ago? Do you think you’ll be better off a year from now? And where do you see the country headed in the next five years?
These are the kinds of questions used by the University of Michigan to calculate the Consumer Sentiment Index, an economic indicator measuring how people feel about the economy.
“It’s a measure that we can compare over time and get a pulse on the attitudes of consumers,” said Joanne Hsu, director of the Surveys of Consumers at the University of Michigan. “Which is important given that consumer spending is over two-thirds of GDP.”
That survey and others show there is a pervasive sense of disconnect between the overall economic picture and how people feel about the economy. Despite slowing inflation, a healthy labor market with record-low unemployment, and stocks that remain in a bull market, consumer sentiment remains below pre-pandemic levels.
“People don’t tend to think in terms of inflationâeconomists do,” said Paul Donovan, chief economist at UBS Global Wealth Management. “But economists are not normal. Normal people think in terms of price levels.”
Watch the video above to find out why consumer sentiment hasn’t matched up with the economic reality, the factors behind the disconnect, and why the issue could play an outsized role in this year’s U.S. presidential election.
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