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Dr. Joanne Hsu: American Consumer Sentiment Has Never Been Lower

VRIC Media Sep 22, 2026 24:57

Summary

American consumer sentiment has slipped to near-historic lows even as aggregate spending holds up, propped up by wealthy households with rising portfolios.

Cost of living remains the number one factor weighing on consumers, reinforced by tariffs, visible gas prices, and 7%+ mortgage rates.

Asset ownership is splitting the economy: households with stock portfolios or low-rate mortgages feel the recovery, while everyone else keeps treading water.

The University of Michigan Consumer Sentiment Index has historically led recessions, which is why the Fed, the White House, and forecasters track it closely.

Darrell Thomas's takeaways

  • Top takeaway Argues the current K-shaped economy leaves asset-holders and locked-in low-mortgage households comfortable, while new home buyers face mortgage rates over 7% and prices that remain elevated
  • Questions whether the Fed's recent quarter-point rate hike will resolve inflationary pressures, given that some drivers appear to be geopolitical rather than monetary
  • Cites a Federal Reserve study showing consumers paid higher prices under tariff policy, and notes that tariff impacts are re-emerging as a sentiment drag
  • Asks why post-GFC QE did not clearly lift consumer sentiment, suggesting policy support does not automatically translate into improved household confidence
  • Frames the discussion around the idea that consumer sentiment matters for investors because roughly 70% of US GDP is consumer spending

Dr. Joanne Hsu's takeaways

  • Top takeaway Argues that the persistence of high prices and cost-of-living pressure has been the number one factor weighing on consumers since the pandemic, and that a real turn in sentiment requires substantial real income gains across the income distribution
  • Reports that open-ended survey responses show a tight correlation between tariff mentions and sentiment declines, with sentiment hitting a low around last April's Liberation Day tariff announcements
  • Describes the current period as unusual for the 'robustness of consumer spending despite low sentiment,' attributing it to wealthy consumers drawing on portfolio gains even as many households feel they are not thriving
  • Says housing buying conditions are very poor, with over 40% of respondents citing high home prices and another 40% citing unaffordable mortgage rates around 7%
  • Notes that a clear majority of consumers in early September expected the Fed to raise interest rates, and that inflation has been above target for 5-plus years and has picked up since 2024