Think about your financial situation for a moment. Are you better or worse financially than you were a year ago? Do you think you'll be better off a year from now? And where do you see this country going in the next five years?
These are the kinds of questions the University of Michigan used to calculate the Consumer Sentiment Index, an economic indicator that measures how people feel about the economy.
“This is a metric that can be compared over time to understand consumer attitudes,” said Joan Hsu, director of consumer research at the University of Michigan. “This is important given that consumer spending accounts for more than two-thirds of GDP.”
This survey and others show a pervasive disconnect between the overall picture of the economy and how people feel about it. Despite slowing inflation, a healthy labor market with record low unemployment, and stocks still in a bull market, consumer sentiment remains below pre-pandemic levels.
“People don't tend to think in terms of inflation, but economists do,” said Paul Donovan, chief economist at UBS Global Wealth Management. “But economists are not ordinary people. Ordinary people think in terms of price levels.”
Watch the video above to find out why consumer sentiment is out of sync with economic reality, the factors behind the disconnect, and why this issue could play a big role in this year's U.S. presidential election. Please check.