Key Takeaways:
The University of Michigan's consumer sentiment index has never been lower — but a growing number of economists say the survey itself may be the problem.
The University of Michigan's consumer sentiment index fell to 44.8 in May and 49.5 in June, both all-time lows, as critics argue a 2024 methodology shift to web-based surveys is skewing results lower. The readings are below the prior record low of mid-2022, when inflation topped 9 percent, even as the labor market remains solid and consumers continue spending.
"It shouldn't be too surprising that people felt differently about the world, including the economy, after the pandemic," Joanne Hsu, director of the Surveys of Consumers at the University of Michigan, said in defense of the index. She noted that the survey shift followed seven years of experimental online data collection and that even under those experimental readings, May would have still reached a new all-time low.
Economists Ryan Cummings and Ernie Tedeschi estimated the web-based shift shaved about nine points off the index in a 2024 analysis. The Chicago Fed also raised concerns about the methodology change. Research has shown that respondents tend to give more negative answers in online surveys compared with phone interviews, a behavioral gap that may explain why the Michigan index now shows Americans feeling worse about the economy than during the depths of the pandemic.
The Web Shift That Changed Everything
The move to web-based surveys in 2024 was a response to the growing difficulty of reaching respondents by cellphone — a problem affecting pollsters across the industry. But critics say the fix introduced its own bias. Joel Wertheimer, an attorney who worked in the Obama White House, argued the survey has also become disproportionately weighted toward Democrats, who tend to report more negative views under the current administration. Michigan's own data show sentiment among Democrats is far worse than among Republicans, and independents — who may lean Democratic — also showed an outsized negative reaction to the web-based format.
Michigan pushed back, saying the survey's Democratic lean followed President Trump's inauguration, not the web shift, and could reflect a broader leftward shift in political preferences consistent with Gallup findings and recent election results.
What Other Surveys Show
The Michigan index is notably weaker than other sentiment trackers, but those measures are also downbeat. The Conference Board's consumer confidence index, one of the more optimistic gauges relative to its history, still shows Americans nearly as negative as they were when Covid was surging. Surveys from the New York Fed and Gallup also point to a foul mood.
"Even with adjustments, sentiment would still likely be soft," said Cummings, now chief of staff at the Institute for Economic Policy Research at Stanford. "No matter what kind of methodological tweaks you do, you're not going to reverse the result that sentiment's down and people are unhappy."
The debate matters because the Michigan index is one of the most closely watched measures of consumer mood, influencing everything from Fed policy expectations to retail spending forecasts. If the July 17 preliminary reading comes in materially higher or lower than the current depressed levels, it could move rate expectations and consumer-facing equities — but the methodology cloud means any move will be met with skepticism until the survey's structural issues are resolved.
This article is for informational purposes only and does not constitute investment advice.
