Understanding the Disconnect: Consumer Sentiment vs. Economic Reality

As economists, we often look at leading indicators to help us understand where the economy is heading. Recently, though, we’ve been looking at a set of numbers that requires a bit more context: U.S. consumer sentiment.

Last month, the University of Michigan Consumer Sentiment Index came in at 51.7.  We are seeing all-time lows in this index over the past few months. For comparison, the index stood at 71.8 in April 2020, during the first full month of pandemic related shutdowns when business uncertainty was near record highs.

That discrepancy demands our attention. April 2020 was a period of unprecedented uncertainty, yet consumers reported feeling significantly better about the economic outlook then than they do today.

The Mechanics of the Index

The University of Michigan has been reporting its Survey of Consumers since 1956. At the Metro Atlanta Chamber, we show this Index because it serves as a valuable leading indicator:

• What it measures: It gauges how Americans feel about their financial futures before they open their wallets.
• Why it matters: Consumer spending accounts for roughly two-thirds to 70% of our total U.S. economy. When sentiment climbs, spending usually follows. When it falls, it can act as a drag on growth.

However, we need to look at behavior alongside sentiment. The top 10% of earners account for roughly 49.7% of all consumer spending nationwide. As long as those households continue to spend, the broader economy holds up—even when overall survey results look pessimistic.

Real Pressures, Real Resilience

There are tangible reasons why people are feeling the pinch right now:

• The Labor Market: We are navigating what feels like a “no-hire, no-fire” environment, low layoffs, but very little new hiring. That creates real household transitions, like college graduates lingering a bit longer at home.
• Cost Pressures: Businesses have spent months managing shifting tariff rates and unpredictable input costs. Meanwhile, energy prices, with oil currently higher than $100 a barrel and record high diesel costs, are front-of-mind for commuters and logistics operators every single week. 

The Bottom Line for Metro Atlanta

The takeaway isn’t that the sky is falling; it’s that sentiment and actual spending behavior are telling two different stories right now. Businesses in the Atlanta region continue to adapt and drive opportunity, proving the underlying strength of our market.

We track consumer sentiment and many other important economic indicators on  MACROview, the Metro Atlanta Chamber’s free data platform. You can access those tools and insights anytime at atlMACROview.com.