The Vibes Are Not Good

Ben Carlson looks skeptically at various measures of consumer sentiment. He notes that doom and gloom has become increasingly common for decades:

Carlson speculates that a combination of COVID and social media caused an already downward trend in sentiment to crater. He cites Stanford researchers who historically could predict consumer sentiment fairly accurately by looking at measures of economic performance. In order words, consumer sentiment used to be predictably tied to economic numbers, but recently the link has become broken:

Although this Gallup chart does not have the same COVID plunge, it does show that pessimism was much less pronounced in previous generations:

The souring of sentiment may also be in part due to increased polarization. This JPMorgan chart suggests that consumer confidence has a strongly partisan tint—significantly for Democrats, and even more strongly for Republicans, with higher confidence when someone from your favored party holds the Presidency:

But while opinions about broader conditions have turned much more negative, sentiment about personal circumstances has remained positive. This gallup chart shows the split, as people’s view of the country has become largely divorced from their view of their own situations:

Carlson notes a similar discrepancy. People may be generally dour about the state of the economy, but they’re more willing than ever to take the risk of starting their own businesses: 

Carlson argues that the growth in startups directly contradicts the idea that people believe the economic future is bleak. His verdict is that actions speak louder than words, and that we should look at what people do rather than how they say they’re feeling. 

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