American consumers have been pessimistic for so long that economists are now questioning when—or even if—households will ever feel financially better off, even as the stock market reaches unprecedented heights.

Market Context

The University of Michigan Surveys of Consumers hit all-time lows in May according to a preliminary reading released last week, marking another grim milestone in consumer confidence that has never recovered since the Covid-19 pandemic struck more than six years ago. That same day, the S&P 500 reached an all-time high. The benchmark index has surged roughly 130% since the start of 2020, while Michigan's sentiment gauge has tumbled 52%, creating a striking divergence between Wall Street performance and household sentiment.

Analysis

Economists told CNBC that consumers remain scarred from years of rapid price increases even as annual inflation cools toward the Federal Reserve's 2% target. Cleveland Fed President Beth Hammack noted there's been about a decade's worth of inflation compressed into half the time, leaving shoppers focused on cumulative price changes rather than month-over-month trends.

"People are starting to hear that inflation is going down, but their box of cereal is still really expensive," said Kyla Scanlon, an economic commentator who coined the term "vibecession." "That feels really, really bad."

High prices have driven most of the decline in consumer sentiment between 2019 and 2026, according to PNC Financial Services analysis. The share of respondents to Michigan's survey who cited negative news about price growth or blamed inflation for their sour outlooks spiked after the pandemic began in 2020. Google searches for "inflation" hit all-time highs earlier this year.

Beyond persistent pricing pressure, economists point to a relentless series of economic shocks that have prevented consumers from recovering between disruptions—from the pandemic to geopolitical conflicts to President Donald Trump's tariff agenda.

"I can't think of a period where you've had shocks like these," said Eric Winograd, chief economist at AllianceBernstein and a former New York Federal Reserve Bank alumnus. "I'm not saying that these are the biggest in magnitude, but to have this many sequential events is extremely unusual."

Despite what they tell pollsters, consumers broadly have continued spending with abandon. Uber and Walt Disney reported strong customer spending last week, defying fears that shoppers would tighten purse strings. The traditional correlation between sentiment and actual spending has largely broken down, said Gregory Daco, chief economist at consulting firm EY-Parthenon.

"We have to depart a little bit from the traditional analysis of these gauges because of the unique circumstances that we're currently living through," Daco said.

Key Numbers

- 52%: Decline in University of Michigan consumer sentiment gauge since start of 2020

- ~130%: S&P 500 surge since January 2020, reaching all-time high on same day as record-low sentiment reading

- $4+: National average price for a gallon of gasoline, prompting lifestyle changes according to AAA research

- Above $100: Oil prices per barrel amid Iran War escalation

- Two-thirds: Share of U.S. economic activity driven by consumer spending

What to Watch

Oil prices and gasoline costs are unlikely to ease near-term as the Iran War continues, several economists told CNBC. Whirlpool flagged "recession-level" demand declines, while McDonald's CEO Chris Kempczinski warned that rising gas prices could pressure customer spending.

The labor market will be a critical determinant of consumer behavior. Federal data released last week showed U.S. job growth exceeded economist expectations in April, though it pointed to a "low-hire, low-fire" environment.

For sentiment to genuinely recover, consumers would need several quarters of positive and stable economic conditions—something Daco and Winograd say hasn't materialized as geopolitical conflicts escalate and tariff pressures persist.

"The question is: Are things getting better or worse?" Winograd said. "It's a foolish man who bets against the U.S. consumer. The base case has to be that the consumer continues to plug along."