Post-Pandemic Gloom Persists Despite Strong U.S. Economic Recovery

Six years after the COVID-19 pandemic, Americans remain unusually gloomy despite economic recovery. Consumer sentiment has yet to rebound to pre-pandemic levels, according to data from the University of Michigan Consumer Sentiment Index and The Conference Board's Consumer Confidence Index. This disconnect between sentiment and economic strength is baffling economists, who historically relied on consumer confidence as a leading indicator of spending and economic health.

The Chicago Federal Reserve's Austan Goolsbee noted that consumer sentiment is no longer a reliable predictor of spending. Instead, economists are focusing on objective measures like inflation, spending, hiring, and economic growth. August saw a 0.9% surge in consumer spending, with a 0.6% increase even after adjusting for inflation, marking the strongest monthly gain since March 2025. Bank of America's analysis of card spending suggests Americans are spending more on discretionary items because they want to, not out of necessity.

September's jobs report showed softer payroll growth and wages failing to keep up with inflation, but economists attributed this to a 'low hire, low fire' situation rather than widespread layoffs. Ken Mahoney, CEO of Mahoney Asset Management, noted that companies are not laying off workers but also not hiring many new ones, partly due to AI's impact on hiring. The 12-month average job gain was about 45,000 jobs a month, fitting a slow trend rather than an economic break.

Researchers suggest deeper analysis of consumer sentiment data, such as examining spending distributions and inflation expectations, to better understand the disconnect. Goolsbee emphasized the importance of exploring whether a small group is driving most spending and what that means for GDP growth and employment. He also called for more research on survey-based inflation expectations as potential better indicators of the business cycle.