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Americans feel grimmer about the economy. Here’s what’s to blame.

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Last Updated: Aug. 9, 2023 at 9:25 a.m. ET First Published: Aug. 9, 2023 at 8:25 a.m. ET

Consumers are just not happy.

Getty Images/iStockphoto
[]Itโ€™s improved a bit over the last few months, but consumer sentiment is still extremely depressed. Of course, thereโ€™s high inflation, but given the low unemployment rate, rising wages and overall economic growth, itโ€™s not normal for there to be so much pessimism.

[]A widely followed user in whatโ€™s colloquially known as Finance Twitter, by the handle Quantian, decided to drill into the data.

[]This person constructed a model to forecast consumer sentiment, using nine variables like the inflation rate, house prices, dollar strength, stock prices and so on to predict consumer sentiment. And it worked โ€” a model using data from 1978 to 2019 was able to come up with a predicted number with an 87% correlation to the actual University of Michigan series.

[]Then that same model was used to predict sentiment after COVID struck. And, as the chart shows, the model completely broke down.

[]MarketWatch also ran a regression, thanks to a big assist from ChatGPT. The five factors are the unemployment rate, year-over-year consumer-price growth, year-over-year house-price growth, mortgage rates and retail gasoline prices, using data from 1990 to right before COVID struck.

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[]What Quantian then did was re-estimate the model to figure out what changed. And there were three takeaways: that consumers cared a lot less about unemployment than previously, they want house prices to fall rather than rise, and they hate high interest rates.

[]Reached over social media, the Twitter user acknowledged that regressions arenโ€™t foolproof but โ€œjust a way to tease at the data and see if thereโ€™s anything interesting there.โ€

[]In order, Quantian expressed the most confidence that:

  • Consumer preferences changed during COVID;
  • Americans are more sensitive to inflation and less sensitive to unemployment than they were historically;
  • A large driver of the current unhappiness is rising mortgage rates and house prices.
[]Of course, if economic preferences changed, perhaps they could change again. If disinflation continues, perhaps American economic views will return to a more normal pattern.

[]But right now Americans are really fed up with inflation, and donโ€™t like high interest rates, either.

[]Read on:

[]Inflation in Argentina is running at 150%. Are there lessons for the U.S.?

[]Mike Pence says inflation is 16%, but CPI is 3%. This is his logic.

[]Recession? White House sees โ€˜momentumโ€™ that will keep U.S. out of one.

U.S. trade deficit falls again. Declining imports may be a warning sign. []The nation’s trade deficit fell 4% in June to $65.5 billion due to declining demand for imported goods, perhaps a sign of weakening in the U.S. economy.

[]Steven Goldstein is based in London and responsible for MarketWatch’s coverage of financial markets in Europe, with a particular focus on global macro and commodities. Previously, he was Washington bureau chief, directing MarketWatch’s economic, political and regulatory coverage. Follow Steve on Twitter: @MKTWgoldstein.

–> More stuff could go in this aside column

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