Are Americans Gloomy About The Economy Or Is Something Else Afoot?

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This gauge has historically tracked key economic measures of consumer spending and inflation: The state of the broader economy usually shapes the way people think about their own financial well-being.

But in recent years, these have diverged. By many measures, the economy is doing well, but people feel they're falling behind. And this has only become more pronounced ahead of the midterms.

Despite strong consumer spending, robust business investment and low unemployment, consumer sentiment keeps slipping and is now 10% below where it was a year ago, according to the Michigan index.

Some commentators point to ongoing inflation as the reason for gloom. It has remained stubbornly above the Federal Reserve's annual 2% target rate due to drivers like tariffs, energy price hikes stemming from Middle East turmoil, and massive amounts of investment in the artificial intelligence build-out.

But what's really happening is that consumer sentiment data and inflation data have become untethered. Inflation has actually dropped sharply from its 21st-century peak of 9.1% in June 2022 after the pandemic to 3.7% in September 2026, but consumer sentiment is lower now than it was even then.

What about wages? Here, too, the data also doesn't fully explain this disconnect. While inflation makes consumer goods pricier, it also lifts pay. Inflation-adjusted wages actually increased between 2022 and the first half of 2026, all while consumer sentiment remained weak.

What has changed in recent months is that inflation-adjusted wages are now falling – which could help explain the darkening outlook among voters.

Inequality versus growth

One possibility is that deeply entrenched inequality explains this divergence.

Compared with other eras of moderate-to-high inflation, the US economy today is much more unequal. Income inequality has increased over the past 20 years, narrowing only during the 2008 and 2020 crises before quickly widening to prior levels.

This trend is important for understanding which consumers are shelling out cash. The Fed has consistently cited strong consumer spending in its economic assessments, but the richest 10% of Americans account for half of that spending today. Meanwhile, spending by the bottom 80% of earners has fallen behind inflation.

In other words, the strong total consumer spending figures reported as official data are being driven by very wealthy Americans and fail to reflect the experience of typical consumers who are the bulk of the electorate.

This trend of increasing inequality has been particularly acute in terms of wealth: The top 0.1% of American households together own five times as much wealth as the bottom 50%. Much of this reflects the uneven gains of the stock market boom and how wealth is taxed.

In short, Americans' economic malaise might be driven by concerns over income and wealth that conventional measures don't fully capture.

It's not just about me

When it comes to consumer surveys like the University of Michigan index, economists generally assume that the answers reflect the personal experience of respondents.

But I agree with other scholars who argue that sometimes these answers may be based less on people's own circumstances and more on how they view the economy as a whole. This assessment could reflect, for example, concerns like equity, equality of opportunity and economic justice.

When responses are driven by a concern for collective well-being rather than just personal material self-interest, social scientists refer to such perceptions as“sociotropic.”

This last point isn't just theoretical. Research suggests voters tend to weight their perceptions of the economy more heavily than their personal financial circumstances when deciding whether to vote for the incumbent party.