Consumer sentiment is in the dumps despite a solid economy. Goldman Sachs blames ‘lower happiness’

Goldman Sachs identified a potential culprit for sour consumer sentiment readings: A decline in happiness.

The consumer sentiment index tracked by the University of Michigan hit record lows this year. The index fell 13% year over year in September, due to a drop of almost 8% from August alone.

Economists have widely questioned why sentiment has remained depressed since the Covid pandemic, even as the economy hummed along on paper. Goldman economist Joseph Briggs told clients this week that the downward pressure may stem from broader pessimism in society.

“Low reported economic sentiment likely reflects a more fundamental, downbeat assessment of the state of the world rather than the economy,” Briggs wrote to clients.

To be sure, Briggs said inflationary pressures are likely also hurting confidence. But he said “lower happiness” at large can partially explain the continued disconnect between sentiment and other measures of the economy’s performance, such as gross domestic product growth or stock market performance, that offer rosier views.

Briggs pointed to data from the University of Chicago’s General Social Survey illustrating how happiness never fully recovered from a drop during the pandemic. The share of respondents feeling “very happy” fell to 23% in 2024 from 31% in 2016, survey data shows. The percentage reporting responses of “not too happy” rose from 13% to 20% over the same period, per the data.

Overall happiness saw a sharper decline than the perception of financial satisfaction also tracked in the survey, according to Briggs’ analysis of the data.

Briggs isn’t the only economist pointing the finger at declining happiness readings. Joanne Hsu, the director of Michigan’s survey, told CNBC earlier this year that the downtrend in sentiment mirrors readings showing both decreasing happiness and trust in public institutions.

Briggs also cited a connection between lower overall happiness readings and decreasing trust in institutions. He found that lower trust in these bodies caused a “disproportionate amount” of the decline in net happiness in recent years.

Given the connection to non-economic variables, consumer sentiment readings may not improve even if the economy continues chugging along, Briggs said. As a result, consumer sentiment may become a less useful predictor of economic dynamics, he said.