People Say the Economy Is Horrible, So Why Are They Spending at Record Levels?

Measures of consumer sentiment have lost their usefulness as indicators of the health of the economy

By

Diccon Hyatt

Full Bio Diccon Hyatt is an experienced financial and economics reporter. He's written hundreds of articles breaking down complex financial topics in plain language, emphasizing the impact that economic currents would have on individuals' finances and the market. He has a Bachelor's degree in English from the University of Delaware.

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Published May 07, 2026

05:10 PM EDT

Consumer spending and retail sales increased to record highs in recent months. Jeffrey Greenberg/UCG/Universal Images Group via Getty Images

Key Takeaways

• Measures of consumer confidence and sentiment have lost their ability to predict trends in consumer spending and other aspects of the economy, economists say.
• Consumer spending has continued to rise even as sentiment scrapes all-time lows.
• One possible explanation: people are unhappy about having to take on extra work to keep up with rising prices.

Get personalized, AI-powered answers built on 27+ years of trusted expertise.

Ever since the pandemic, the U.S. public has been saying how bad the economy is while buying more and more stuff.

A pair of research studies have shed light on the increasing disconnect between how we talk about the economy and how we vote with our dollars. Since 2020, there's been barely any correlation between consumer sentiment—how people feel about their own finances and the economy, based on surveys—and consumer spending, according to an analysis this week by market research company Big Chalk, and a separate paper by researchers at the Federal Reserve last week.12

The divergence was stark in March, when the University of Michigan's widely-watched consumer sentiment index—a measure of how people feel about their own finances and the economy based on a survey of U.S. adults—plunged well towards its lowest since the history of the survey launched in 1952.3 That same month, consumer spending and retail sales increased to record highs according to the Bureau of Economic Analysis and the Census Bureau.45 The studies suggest that measures of consumer sentiment have lost their usefulness as indicators of the health of the economy.

Before the onset of COVID-19, the University of Michigan's Consumer Sentiment and the Conference Board's Consumer Confidence indexes were used by economists and investors to help forecast consumer spending in the coming months. When the public felt pessimistic about the economy, people tended to tighten their wallets. That no longer is the case according to the studies. Big Chalk analyzed 50 years of data on consumer sentiment and confidence and found that the the Conference Board's survey was a good indicator of employment trends, but that neither of the major surveys had any real connection to consumer spending or inflation.

What This Means For The Economy

Measures of consumer sentiment and confidence aren't good indicators of what people will actually do with their money, at least for the time being.

"These numbers are probably really only useful for telling you how consumers feel emotionally in the moment," Rick Miller, a partner at Big Chalk’s Marketing effectiveness practice, toldInvestopedia in an interview. "But as far as predicting spending, predicting inflation, they don't seem to have much usefulness."

Fed researchers did a deeper dive into the data, tracking the spending of 10,000 individual households to see how their survey responses compared to their spending decisions. Remarkably, people who said the economy was bad or that prices were too high actually increased their spending, even after taking inflation into account.

"What consumers have been saying differs from what they have been doing during the post-pandemic period," researchers led by Sinem Hacioglu Hoke wrote. "Consumers say they feel worse, but through the end of 2024, they are buying more – not just spending more – than they did in 2019. This disconnect between what consumers have been saying and doing suggests that consumer sentiment surveys on their own have become weaker indicators of future consumer behavior and of the health of US consumers."

Related Education

[Understanding Consumer Confidence and Its Impact on the Economy

](https://www.investopedia.com/articles/fundamental/103002.asp) [Economic Factors Influencing Demand for Consumer Goods

](https://www.investopedia.com/ask/answers/042815/which-economic-factors-most-affect-demand-consumer-goods.asp)

What changed during the pandemic? The Fed researchers said it might have something to do with the burst of high inflation that started in 2021 and has yet to fully dissipate. Although overall household incomes have more than kept up with price hikes, the Fed research found people were changing jobs, taking on extra work to keep up with rising prices, and the more they did those things, the worse they felt.

"Although sentiment improves with higher incomes, the more people said they had to make changes to their behaviors since 2019 to reduce spending, the worse is their sentiment," they wrote.

The Big Chalk analysis didn't pinpoint reasons behind the disconnect. Miller speculated people's perceptions are increasingly shaped by social media, which tends to be politically polarized and inflammatory when it comes to economic news.

"The news seems more alarmist, even if the facts themselves are not," Miller said. "When queried on sentiment, People react to how they feel, and not necessarily what is objectively happening on the ground."

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• How are higher-income households influencing consumer spending trends?
• Why are wealthier consumers trading down to save money?
• What are the differences between major consumer sentiment surveys?

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1. BigChalk. "Consumer Sentiment and Brand Strategy."
2. Federal Reserve. "Tracking consumer sentiment versus how consumers are doing based on verified retail purchases."
3. University of Michigan Surveys of Consumers via Federal Reserve Economic Data. "University of Michigan: Consumer Sentiment."
4. Census Bureau via Federal Reserve Economic Data. "Advance Retail Sales: Retail Trade."
5. Bureau of Economic Analysis via Federal Reserve Economic Data. "Personal Consumption Expenditures."

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