Although (final) sentiment, as measured by the University of Michigan survey, remains surprisingly pessimistic given the observable data, this decline must be placed in context.
Figure 1: University of Michigan Consumer Sentiment (blue, left scale), Conference Board Consumer Confidence (beige, left scale), Gallup Economic Confidence (light green, left scale), all degraded and normalized by standard deviation (for the sample period displayed); And Shapiro, Sudhof and Wilson (2020) Daily News Sentiment Index (black, right scale). The Gallup observation for May is the observation for April 30, etc. The News Index observation for May extends until 05/19/2024. The NBER has defined the peak to trough dates of the recession in gray. Source: U.Mich via FRED, Conference Board via Investing.com, Gallup, SF FedNBER and author’s calculations.
It is interesting to ask who is behind this pessimism. For the Michigan survey for which we have a partisan breakdown, we can conclude that, compared to mid-2016, Republicans remain much more pessimistic than Democrats or independents.. It’s hard to say why they are so pessimistic; it is difficult to associate it with “news” as reflected in the SF Fed Sentiment Index.
