The University of Michigan consumer sentiment index fell from 51.7 in August to 47.8 in early September. That is the second lowest reading since the survey began in 1952. Lower than the 2008 financial crisis. Lower than the early pandemic. The question worth sitting with is not whether people are wrong to feel this way. It is what a sentiment number is actually good for.

What The Index Measures

Sentiment surveys ask how people feel about their finances now and how they expect things to go. They are a mood reading, and mood is driven by the prices people encounter most often rather than by the prices that matter most to their balance sheet.

Fuel is the clearest example. A household fills the tank weekly and sees the number on a sign from the road. That repetition gives gasoline and diesel a weight in how people feel about the economy that is far larger than their share of the household budget. Grocery prices work the same way. A mortgage payment is a much larger number and moves almost nobody's mood, because it arrives once and gets paid automatically.

So a sentiment collapse tells you which prices are visible. It does not tell you what is happening to household finances underneath.

The Gap Between Feeling And Behavior

Spending has not collapsed the way sentiment has. Unemployment is 4.1%. Payrolls added jobs in August. Consumers who say the economy is the worst they can remember are still, in aggregate, buying.

That gap has been persistent for several years now, and it has made sentiment a poor predictor of what comes next. Forecasters who traded off the 2022 sentiment trough were wrong about the recession that did not arrive.

Where It Does Matter

Sentiment is a better forecast of behavior than of the economy. When people feel poor, they negotiate harder, they delay discretionary upgrades, and they become much more responsive to discounts. Retailers read these numbers and price accordingly.

Final Take

There are two practical readings here and they point in opposite directions for different people.

If you are buying something discretionary this fall, a car, furniture, appliances, travel, you are shopping in a market where sellers are reading the same sentiment number you are and expecting a weak season. That is a negotiating position. Ask for the concession, because the seller is already braced for it.

If you are the one feeling it, the useful move is to check whether your own numbers actually match the mood. Pull the last three months of statements and compare total spending to the same three months last year. A surprising number of households discover their spending is flat and it is the headlines, not the budget, that changed.

Feeling worse than 2008 and being worse off than 2008 are different conditions, and only one of them responds to a spreadsheet.

Written by Deniss Slinkins
Millionaire Core