Americans Feel More and More Glum, Data Shows. Economists Are Over It.

Americans Feel More and More Glum, Data Shows. Economists Are Over It.

**By a Market Analyst & Business News Writer | October 3, 2026**

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## The Number That Won't Stop Falling

Let me tell you about a number that has become the most closely watched — and most disputed — figure in American economics.

**48.1.**

That's the University of Michigan's Consumer Sentiment Index for September 2026. It's down 7% from August and nearly 13% from a year ago. And according to the survey, which dates back to 1952, Americans are feeling worse about the economy right now than they did during the 1970s oil crisis, 9/11, the Great Recession, and the COVID-19 pandemic .

The four lowest readings in the index's 74-year history have all occurred in the past six months. The record was set in May.

On paper, this should be a five-alarm fire for policymakers. If Americans feel this bad, they should be pulling back on spending, hunkering down, and preparing for the worst.

But here's the thing that's driving economists absolutely crazy: **They aren't.**

Retail sales are still growing. Consumer spending rose 0.9% in August — the biggest gain in over a year. Airlines are full. Restaurants are packed. And the stock market, despite its recent wobbles, is still up double digits for the year .

So what's going on? Why do Americans say they're miserable while acting like everything is fine?

The answer reveals something deeply uncomfortable about the way we measure economic sentiment — and why some economists are starting to tune it out entirely.

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## The Case Against the Sentiment Index

Let me introduce you to the skeptics.

### The Methodology Problem

The University of Michigan's survey has a dirty secret: **It's tiny.**

Each month, the survey conducts roughly **900 to 1,000 interviews**. That's it. From a country of 335 million people, the entire narrative about American economic psychology is built on fewer than a thousand conversations .

By contrast, Morning Consult conducts over **140,000 survey interviews** of the same questions every month. And their data tells a very different story .

"Relying on UMich data to inform corporate or investor decisions poses material risk for executives, especially for decisionmakers with fiduciary duties," Morning Consult wrote in a scathing January 2026 analysis. "The sample sizes are too small, the data is not collected every day, and the trend is misleading" .

### The Methodology Change That Broke the Data

Here's where things get even more complicated. In **October 2024**, the University of Michigan changed its survey methodology — shifting to online data collection and altering the sample composition.

According to research by leading economists from Yale and Stanford, that change introduced a **systematic bias**. In October 2024, the Michigan data was **9 points too low**. After the election and the ensuing trade war, the gap ballooned to **over 20 points** .

Are the responses reflecting underlying economic reality? Or are they artifacts of a flawed methodology?

"Are changes in responses due to methodological inconsistencies or underlying economic realities? This very question is fundamentally concerning," Morning Consult noted .

### The Conference Board Disagrees — But Still Shows Pain

The Conference Board, which publishes a separate consumer confidence index, has its own methodological issues — smaller sample sizes and lagged releases. But its September reading told a similarly grim story: **81.9**, down from 88.6 in August, and the lowest level since April 2014 .

"Consumers' assessment of current business conditions turned negative for the first time since September 2024," said Dana Peterson, the Conference Board's chief economist. "Their view of the current labor market also deteriorated, though it remained in positive territory. For the next six months, consumers expect both business conditions and the labor market to weaken" .

So both major surveys agree: Americans are glum. The question is **why** — and whether it matters.

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## The Real Reasons Americans Are Glum

Let me set aside the methodology debate for a moment and focus on what's actually driving the pessimism. Because the reasons are real, measurable, and — for millions of Americans — deeply painful.

### Reason #1: Gas Prices and the Iran War

The single biggest factor is energy. The U.S.-Israeli war with Iran, now in its seventh month, has disrupted global oil supplies and pushed prices at the pump to levels that make every trip to the gas station a reminder of the conflict .

"Obviously, the biggest factor is the higher gasoline prices and higher diesel prices," said Gus Faucher, chief economist at PNC Financial Services Group. "People see that every day when they go to fill up their car" .

And they hear the news about how record diesel prices could lead to more price hikes down the road, he added.

Year-ahead inflation expectations jumped to **4.6%** in September — the highest since June, and well above the **3.4%** recorded in February before the Iran conflict began. Long-run inflation expectations ticked up to **3.4%**, ending three consecutive months at 3.3% .

### Reason #2: Stubborn Inflation

Inflation is running at **3.4%** annually — down from its peak, but still well above the Federal Reserve's 2% target. And for lower-income Americans, the pain is disproportionately acute.

About **55% of consumers** cited elevated prices as a negative factor for their personal finances in September, up from 53% in August and 44% a year ago .

"Consumers also hear the news about how nominal record diesel prices have the potential to lead to more price hikes down the road," Faucher added .

### Reason #3: The Fed's Rate Hikes

The Federal Reserve raised interest rates in September for the first time in three years, and signaled more hikes could be coming. For Americans with credit card debt, auto loans, or mortgages, that means higher monthly payments .

"Rising interest rates also weighed on consumers in September," the University of Michigan report noted .

### Reason #4: The K-Shaped Economy

Perhaps the most important factor — and the one that explains why **spending** and **sentiment** are telling different stories — is the K-shaped economy.

The **top 20% of households by income now account for more than 60% of all consumer spending**, according to Moody's Analytics. These households have been enriched by stock market gains and rising home values. They're not worried about gas prices — they're booking vacations and renovating their homes.

Meanwhile, the **bottom 60% of households hold just 15% of America's wealth**. They're the ones feeling the squeeze from rising gas prices, higher rents, and elevated credit card rates. They're the ones whose confidence has collapsed .

Wage growth has split by income in a way that's almost hard to look at. According to Bank of America data, the highest third of earners was growing after-tax pay about **4.2%** in February, while the lowest third was growing about **0.6%** — a **3.6-point gap**, the widest since that comparison began in 2015 .

So "Americans keep spending" is literally true — but it's a specific set of Americans holding the total up.

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## Why Economists Are Over It

Here's the uncomfortable truth: **Sentiment surveys are supposed to predict behavior. And right now, they're not.**

The University of Michigan's index is at its second-lowest level on record. Yet retail sales are growing, consumer spending is rising, and the economy is still expanding at a 2.2% clip .

The disconnect has led some economists to conclude that sentiment has become **politically contaminated** — that it's measuring partisanship rather than pocketbooks.

The data supports this. Republican sentiment is now **20% lower than January 2026**. Democratic sentiment is down **13%**. And Independent sentiment is little changed .

"Overall, interviews reveal broad agreement across the political spectrum that the outlook for the economy has weakened since the beginning of the year," said Joanne Hsu, director of the University of Michigan's Surveys of Consumers .

But the magnitude of the decline is partisan. Republicans, who were euphoric after Trump's election, have swung hard to pessimism. Democrats, who were despondent, have barely budged.

This is not new. Consumer sentiment has been increasingly partisan for years. But the gap has grown so wide — and the overall level so low — that some analysts question whether the index still measures what it's supposed to measure.

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## What the Experts Are Saying

The experts are, to put it mildly, divided.

### The "Sentiment Is Broken" Camp

**Morning Consult**: "Relying on UMich data to inform corporate or investor decisions poses material risk for executives, especially for decisionmakers with fiduciary duties: the sample sizes are too small, the data is not collected every day, and the trend is misleading" .

### The "Sentiment Is Real" Camp

**Dean Baker, Center for Economic and Policy Research**: "This is a big hit to sentiment. Clearly people see a worse situation going forward. This is most likely due to people seeing little prospect of the Iran War ending soon. Sentiment is likely to remain weak until the war ends. It will get much worse if the AI bubble crashes" .

**Gus Faucher, PNC Financial Services Group**: "Inflation has picked up over the past year or so because of tariffs and now the conflict in Iran. The end of the conflict does not appear imminent, and I think that people are feeling frustrated and concerned" .

### The "It Matters for Politics" Camp

**Darrell West, Brookings Institution**: "The weak economy is the most important issue for many voters, and unless it improves, will drag down Republicans in November. The election is a referendum on Trump and it does not look like he will fare very well" .

**Clay Ramsay, University of Maryland**: "The underlying inflation left over from the post-Covid period is being fed by the Iran war's pressure on oil prices, plus the many tariffs. We are not in a business-friendly or a consumer-friendly environment right now. So urging people to vote who are focused on handling the day-to-day in their lives or small businesses may well backfire on Republicans" .

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## Frequently Asked Questions (FAQs)

### Q1: What is the University of Michigan Consumer Sentiment Index?

The Index of Consumer Sentiment is a monthly survey conducted by the University of Michigan since 1952. It measures how Americans feel about their personal finances, business conditions, and buying conditions. A higher reading indicates confidence; a lower reading indicates pessimism.

### Q2: Why is the September 2026 reading so low?

The September reading of **48.1** is the second-lowest on record. It's driven by high gas prices stemming from the Iran war, stubborn inflation, rising interest rates, and a K-shaped economy where lower-income households are falling further behind .

### Q3: Why are economists skeptical of the index?

Some economists argue the survey's **small sample size** (900-1,000 interviews per month) and **methodology changes** introduced in October 2024 have made the data unreliable. Morning Consult found the Michigan data was 9 points too low in October 2024 and over 20 points too low after the election .

### Q4: Are Americans actually spending less?

**No.** Retail sales are still growing, and consumer spending rose 0.9% in August. The disconnect between sentiment and spending suggests the index may be measuring political mood rather than economic behavior .

### Q5: What is the K-shaped economy?

The K-shaped economy describes a situation where **high-income households thrive while low-income households struggle**. The top 20% of households account for more than 60% of consumer spending, while the bottom 60% hold just 15% of wealth .

### Q6: How does this affect the midterm elections?

Consumer sentiment is a leading indicator of political outcomes. With sentiment at historic lows and Trump's approval at 32%, Republicans face significant headwinds. "The weak economy is the most important issue for many voters," said Darrell West of Brookings .

### Q7: What would improve consumer sentiment?

Experts point to three things: (1) **ending the Iran war** and reopening the Strait of Hormuz to bring down energy prices, (2) **stabilizing inflation** and interest rates, and (3) **addressing the K-shaped economy** that is leaving lower-income households behind .

### Q8: Should I trust the sentiment index?

That depends on what you're using it for. As a **predictor of spending**, it's currently unreliable. As a **measure of political mood**, it's telling. And as a **warning sign** about the pain being felt by lower-income Americans, it's brutally accurate.

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## Conclusion: The Warning We Can't Afford to Ignore

Americans feel worse about the economy than at almost any point in modern history. That's not an opinion. It's a fact, backed by a survey that has tracked American sentiment for **74 years**.

The reasons are clear. Gas prices are up. Mortgage rates are up. Credit card debt is up. And wages — despite modest gains — aren't keeping pace with the cost of living for the bottom half of American households.

For American families, the message is simple: **You're not imagining it.** The economy is hard right now. If you're struggling, you're not alone.

For American investors, the message is more complex. Consumer sentiment is a leading indicator. When people feel bad, they spend less. When they spend less, corporate earnings suffer. When earnings suffer, stocks fall. The disconnect between record-high stock prices and record-low consumer sentiment can't last forever.

For American policymakers, the message is urgent. The midterm elections are **six weeks away**. Republicans are bracing for losses. Democrats are promising change. But no matter who wins, the underlying problems — the Iran war, the energy shock, the debt spiral, the housing crisis — won't be solved by an election.

The American Dream is slipping out of reach for millions of people. And the sentiment index — the most reliable measure of how Americans feel about their economic lives — is telling us that the problem is getting worse, not better.

The question isn't whether this will change American politics. It's how dramatically.

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## Disclaimer

This article is for informational and educational purposes only and does not constitute financial, investment, or policy advice. The information contained herein is based on publicly available sources as of October 3, 2026. Economic conditions and political polling are subject to rapid change. Stock market investments involve risk, including the potential loss of principal. The author and publisher are not responsible for any decisions made based on the information presented in this article. Always consult a qualified financial advisor before making any investment decisions.

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