US Consumer Sentiment Remains Low Despite Economic Growth

The disconnect between consumer sentiment data and price levels in the US economy has been puzzling analysts. The University of Michigan's consumer sentiment index remains 10% lower than a year ago, despite low unemployment and strong growth in consumer spending and business investment.

One explanation is that inflation has not kept pace with wage growth. While median weekly wages have increased over the past decade, real wages fell from 2020 to 2025. However, real wages have recovered since 2022, yet consumer sentiment remains negative.

Another possible reason for this disconnect is that people are perceiving prices in nominal terms rather than adjusting for inflation. Headline inflation measures exclude food and energy prices, which have increased the most, leading to a mismatch between what consumers see at the gas pump or grocery store and the moderate inflation reported by the Federal Reserve.

Economists suggest that consumer sentiment may be reflecting broader concerns about inequality and instability in the economy. The top 10% of Americans account for half of consumer spending, while the bottom 80% have not kept pace with inflation. Wealth inequality has also been rising steadily over the past two decades.