Michigan consumer sentiment falls to historic lows despite wage growth

Consumer sentiment in the United States has dropped to levels lower than almost any other period in modern history, according to Joanne Hsu, who directs the University of Michigan's consumer sentiment survey. The survey, which has been conducted since 1946, indicates that this decline is broad, affecting all demographic groups. Hsu noted that Democrats, Independents, and Republicans all report feeling worse about the economy under the current administration than they did during the first Trump term.

Hsu attributed the downturn to the fact that wages are not keeping pace with inflation. She highlighted a significant drop in consumer confidence regarding future earnings, stating that the share of consumers expecting their wages to grow faster than inflation fell from 18 percent a year and a half ago to only 11 percent in September. This pessimism persists despite a strong stock market and rising nominal wages.

The cost of living has increased sharply across key sectors. According to the Bureau of Labor Statistics, grocery prices rose by more than four percent over the past two years. AAA data shows gas prices are up 35 percent. In the housing market, Freddie Mac projects that 30-year fixed mortgage rates will remain above seven percent through next year. Real estate agent Michael Perna observed that these rates have reduced buyer purchasing power by approximately $50,000 compared to when rates were at 6.5 percent. He noted that homes are staying on the market longer as buyers struggle to afford current price points.

President Donald Trump had promised to "quickly defeat inflation" and lower interest rates during his 2024 campaign. However, Hsu pointed out that consumer sentiment initially rose after Trump's reelection but has since declined. The current economic mood contrasts with previous periods of economic stress, including the stagflation of the mid-1970s, the 2008 financial crisis, and the post-pandemic price spikes under the Biden administration.

Visitors to the Franklin Cider Mill in suburban Detroit expressed frustration with their financial situations. Jeffrey Robinson, a high school principal, described parents struggling to afford gas for carpooling. Robinson stated that the average public is paying a price for current economic conditions and questioned how long individuals can sustain them. Other consumers cited tariffs as a factor raising prices, with one woman noting that while she believed tariffs might bring manufacturing jobs in the long term, they currently make life harder.

The survey results suggest that despite political divisions, economic anxiety is a unifying factor among American consumers. Hsu's data indicates that the disconnect between financial metrics and personal financial reality is driving the current pessimism. As Election Day approaches, these sentiments may influence voter behavior, though specific electoral impacts remain unquantified in the available data.