The Great Divergence: Mapping the Structural Rise of Economic Pessimism
Why Traditional Macroeconomic Indicators Fail to Capture the Modern Affordability Crisis
Abstract / Summary
This paper synthesizes data from nine leading economic surveys to document a profound and growing trend of economic pessimism across the United States. Traditional economic measures of unemployment and inflation no longer track household perceptions of whether they are better off or not. Future research must develop a “New Cost of Living” framework that accounts for cash-flow burdens often excluded from current price indices including the CPI. This includes investigating the impact of rising healthcare cost-sharing (including higher deductibles and any increase in premiums paid by households) and the total cost of entry for first-time homebuyers. By refining these metrics, researchers can better explain the structural anxiety and “housing resignation” now surfacing in national sentiment data.
Key Findings
· Systemic Decoupling of Sentiment and Growth: Evidence from nine major surveys shows that consumer sentiment remains at near-recessionary levels despite strong headline GDP and employment data, suggesting a structural rather in the American mood.
· The Death of Intergenerational Optimism: Data from Pew, Gallup, and the WSJ-NORC poll reveal a historic collapse in the “American Dream,” with 75% of adults lacking confidence that the next generation will be better off—a sentiment driven by the perceived breakdown of the link between hard work and financial success.
· The “Housing Resignation” Phenomenon: Recent research into real estate trends confirms that skyrocketing nominal prices and institutional dominance have forced Millennials and Gen Z into a state of “housing resignation,” where the goal of homeownership is increasingly viewed as an impossibility regardless of individual effort.
· The Failure of the Traditional Misery Index: A critical finding of this study is that the traditional Misery Index is fundamentally flawed. Inflation is the change in an average price, which is not a measure of affordability. The CPI does not measure the share of health care paid by households, the costs for homebuyers, or the actual ticket price of a new improved item. As a result many other factors impact the household budget and financial outlook.
Introduction:
For much of the postwar period, there was a broadly shared assumption in economics and politics that personal financial well-being moved with the overall economy. When inflation and unemployment rose, households felt worse off. When growth accelerated, unemployment fell, and real incomes increased, sentiment improved.
This logic motivated the development of the “misery index,” a concept popularized by Arthur Okun. It shaped the famous 1980 presidential debate when Ronald Reagan asked -- “Are you better off than you were four years ago?” It was the underpinning of the model Ray Fair used to predict outcomes of presidential elections.
The relationship between the actual economy and economic sentiment is now weaker. Despite relatively strong headline macroeconomic indicators economic pessimism as measured by a number of indicators is on an upward trend and is in many cases near long term highs. Two recent highly publicized papers Matt Stoller’s “The Boomcession” (2026) and Lee and Yoo Giving Up: The impact of Decreasing Housing Affordability on Consumption, Work Effort and Investment (2026), document rising economic pessimism in a period where the macroeconomic indicators appear strong.
Matt Stoller argues that pessimism measured by the University of Michigan Consumer Sentiment Index, despite strong economic trends, reflects concentrated market power and persistent high prices in essential sectors, leaving households feeling squeezed and lacking economic agency even as headline GDP growth and employment data appear robust. His analysis draws on publicly available macroeconomic indicators and consumer sentiment surveys, is primarily descriptive, contrasting strong aggregate performance with weak household sentiment and evidence of elevated markups.
Lee and Yoo observe that declining homeownership expectation, driven by high mortgage rates and institutional investor dominance in single-family rentals, have pushed many Millennials and Gen Z households into a “housing resignation,” where abandoning the goal of buying a home reshapes savings and consumption behavior and weakens confidence in future living standards. They combine nationally representative survey data on housing expectations with housing market indicators such as mortgage rates, price-to-income ratios, and institutional investor purchase activity. Their empirical approach links changes in stated homeownership intentions to observed shifts in saving and spending patterns over time.
This memo reviews evidence comparing current and past values of questions designed to measure economic pessimism from several surveys including – (1) the University of Michigan Consumer Sentiment Index, (2) the Conference Board, (3) the Wall Street Journal-NORC poll, (4) the General Social Survey, (5) Gallup, (6) Pew Research Center, (7) the Harris Poll Real Estate Survey, (8) The Survey of Consumer Expectations, and (9) the National Finance Capability Study.
The objective of this analysis is to identify and document the long-term upward trend in economic pessimism across multiple decades and data sources; it is an examination of systemic structural shifts and is not intended to assign political blame to any specific administration or policy cycle. The paper concludes with a discussion of future research on why the disconnect between economic measure and pessimism measure exists and research proposing economic measure that better reflect the experiences of households.
Supporting Evidence on the Rise of Economic Pessimism:
The University of Michigan Consumer Sentiment Index:
The University of Michigan Consumer Sentiment Index is a monthly, nationally representative survey of U.S. households conducted since 1946. The survey typically samples about 500 respondents per month and produces both preliminary and final estimates. The headline Consumer Sentiment Index is constructed from five core questions covering: (1) personal financial situation compared to a year ago, (2) expected personal financial situation a year ahead, (3) expected business conditions over the next year, (4) expected business conditions over the next five years, and (5) current buying conditions for major household durables. The index is benchmarked to 1966 = 100, allowing nearly eight decades of comparison across business cycles, inflation shocks, and recessions. Detailed time series are publicly available.
· Current level vs. historical context: Recent readings (2023–2024) have generally been in the low-to-mid 60s. This is well below typical expansion-era levels (mid-80s to 90s), below the late-1990s peak above 110, and closer to recessionary trough ranges (mid-50s in 2008–2009). The index briefly fell to near 50 in mid-2022 during the inflation surge — one of the lowest readings outside the early 1980s. While sentiment has partially recovered from that trough, it remains significantly below long-run expansion norms.
For a detailed press release on the latest University of Michigan consumer sentiment results and components, see the University of Michigan’s report: Final Results for February 2026 (University of Michigan Surveys of Consumers).
The Conference Board Consumer Confidence Index:
The Conference Board Consumer Confidence Index is a monthly, nationally representative survey of roughly 3,000 U.S. households conducted by The Conference Board since 1967. The index is composed of two core subcomponents — the Present Situation Index (consumers’ assessment of current business and labor market conditions) and the Expectations Index (short-term outlook for income, business conditions, and employment) — and is benchmarked to 1985 = 100, enabling comparison across more than five decades of economic cycles and sentiment shifts. The Expectations Index is often highlighted because readings below 80 have historically been associated with increased probability of recession. Historical time series and documentation are published monthly.
· Current and pre-pandemic context: In January 2026, the Consumer Confidence Index fell to 84.5 (1985=100), down sharply from 94.2 in December 2025 and marking the lowest overall confidence reading since around 2014. This 84.5 reading sits well below its pre-pandemic level in early 2020 — for example, the index was around 132–135 in February 2020 — highlighting a large erosion of confidence compared with a robust pre-COVID outlook. The dive in 2026 reflects drops in both the Present Situation and Expectations subindices, with the Expectations Index at 65.1, well below the recession-warning threshold of 80.
For a detailed press release on the January 2026 index reading and components, see the Conference Board’s report: Consumer Confidence Fell Sharply in January 2026 (Conference Board press release).
The Wall Street Journal- NORC Center Poll:
The Wall Street Journal–NORC Center Poll is a recurring, nationally representative public opinion survey conducted by t NORC at the University of Chicago in partnership with The Wall Street Journal. The July 10–23, 2025 wave included 1,527 U.S. adults (margin of sampling error ±3.4 percentage points at the 95% confidence level) and is part of a long-running series of WSJ-sponsored polls dating back to 1987 that track core questions about economic opportunity, living standards, and belief in upward mobility. The series uses repeated nationally representative cross-sections rather than a panel design, enabling multi-decade comparison of consistent items.
· Share saying they have a good chance of improving their standard of living: 25% in July 2025, a record low in the series dating to 1987; prior recent readings were roughly 28%–29% in 2023–2024, indicating further decline.
· Confidence that children’s generation will have a better life: More than 75% report lacking confidence that life will be better for the next generation, reflecting historically elevated pessimism about intergenerational mobility.
· Belief that hard work leads to success: Roughly 70% say the idea that hard work leads to success either does not hold anymore or never did, among the highest skeptical readings recorded in the series’ modern tracking period.
For detailed reporting on the July 10–23, 2025 Wall Street Journal–NORC Center Poll, including results on confidence in standard of living, beliefs about the next generation’s prospects, and views on whether hard work leads to success, see this Axios article summarizing the WSJ poll results.
The General Social Survey:
The General Social Survey (GSS), conducted by NORC at the University of Chicago since 1972, is a nationally representative repeated cross-section survey of U.S. adults fielded roughly every one to two years. Typical sample sizes range from approximately 1,500 to 3,000 respondents per wave (larger in some earlier years). The GSS provides more than five decades of time-series data on economic attitudes, perceived mobility, financial satisfaction, class identification, and confidence in institutions. Public-use datasets, questionnaires, and detailed documentation are freely available. Not every economic sentiment question is asked in every single wave, so some long-run comparisons require using the years in which a variable was fielded consistently.
· Hard work vs. luck in getting ahead: In the late 1980s and 1990s, roughly 60–65% of respondents said hard work was more important than luck in getting ahead. In recent waves (2021–2022), that share has fallen to roughly 45–50%, while the share emphasizing luck or connections has risen from approximately 35–40% in the 1990s to about 50–55% recently — among the most skeptical readings in the series.
· Satisfaction with financial situation: During the late-1990s expansion, approximately 35–40% reported being “very satisfied” with their financial situation. During the Great Recession (2008–2010), that share fell to roughly 20–25%. In the most recent waves (2021–2022), “very satisfied” has been around the high-20% range, below late-1990s highs and closer to long-run averages than peak optimism periods.
· Subjective class identification (working class): In the 1990s and early 2000s, about 40–42% identified as working class. In recent waves (2021–2022), that share has risen to roughly 45–47%, while identification as middle class has declined several points relative to late-20th-century levels.
· Expectations that children will have a better standard of living: In the 1990s, around 60–65% believed children would have better lives than their parents. Following the Great Recession, that share fell into the mid-40% range. Recent readings remain around the mid-40% level, well below late-20th-century optimism and near post-2008 troughs.
· Confidence in major economic institutions (banks, big business): In the 1970s, confidence in banks and major corporations often exceeded 40–50% expressing “a great deal” or “quite a lot” of confidence. After the 2008 financial crisis, those shares fell into the 20–30% range and have remained roughly within that band in recent waves, far below late-20th-century highs.
The GSS also provides an excellent interactive data tracker through its Data Explorer tool, which allows users to search specific variables, review exact question wording, and generate time-series trend charts across decades. Readers can directly explore and verify trends by visiting the GSS Trends portal here: https://gssdataexplorer.norc.org/trends#
Gallup
Gallup has asked versions of the “better life for the next generation” question for several decades, with consistent trend data available since the late 1990s (and related standard-of-living and generational optimism questions dating back earlier). The specific item asking whether “today’s children will have a better life than their parents” has been tracked in modern form since the late 1990s, allowing roughly 25+ years of direct comparison. Recent readings (42% in 2022 saying youth will have a better life) represent among the lowest levels recorded in that multi-decade trend series.
· Belief that today’s youth will have a better life than their parents: In 2022, 42% of Americans said today’s children are likely to have a better life than their parents, down from roughly 60% in the late 2010s. The 2022 reading represents a sharp break from pre-pandemic optimism and is near historic lows in Gallup’s long-term tracking.
· Belief that today’s youth will be worse off: Correspondingly, the share saying today’s youth will be worse off rose into the majority range (roughly mid-50% range in 2022), compared with substantially lower readings during the late-2010s economic expansion.
The most recent Gallup result for this exact question (“how likely it is that today’s children will have a better life than their parents”) that I can find is from Gallup’s September 2022 poll:
Pew Research Center
Pew Research Center is a nonpartisan research organization that conducts nationally representative surveys in the United States (typically samples of about 5,000–10,000 adults depending on the study) and cross-national surveys through its Global Attitudes Survey. Pew has regularly examined perceptions of economic opportunity, intergenerational mobility, and children’s financial futures. Both the U.S. and global surveys have been available since around mid 2010s.
· U.S. view that children will be financially worse off than their parents: Approximately three-quarters of U.S. adults (around 74–75% in recent surveys) say children growing up today will be financially worse off than their parents. This represents one of the highest levels of intergenerational pessimism measured in recent decades.
· Global comparison: Across countries surveyed in Pew’s global studies, the median share saying children will be financially worse off is 57%. The U.S. figure is significantly higher than the global median, indicating comparatively elevated pessimism about intergenerational mobility in the United States.
The Harris Poll Real Estate Survey:
The Status of Real Estate in 2024 (fielded Jan 19–21, 2024; n = 2,047 U.S. adults) included a comparable prior wave fielded Nov 11–13, 2022 (n = 1,980). Respondents were asked on a 5-point agree/disagree scale to evaluate several statements about housing affordability and mobility, including whether hard work is enough to purchase a desired home. Based on publicly released materials, the “no matter how hard I work…” item appears in the 2022 and 2024 real estate waves; there is no publicly documented multi-year trend prior to 2022 for this exact wording, suggesting it is a relatively recent tracking item rather than a long-running decade-scale series.
· Housing mobility pessimism: 42% of U.S. adults in 2024 agreed with the statement “No matter how hard I work, I’ll never be able to afford a home I really love,” up slightly from 40% in 2022. Among Gen Z, agreement reached 46% in 2024.
· Perceived inheritance barrier: 71% of adults in 2024 agreed that they would need to be gifted or inherit money to own a home anytime soon, up sharply from 60% in 2022 — an 11-point increase in two years.
· American Dream is dead” (renters): 57% of renters in 2024 agreed that “The American Dream of owning a home is dead.” A directly comparable 2022 renter figure for this exact item is not reported in the published toplines.
The most recent Harris poll results on the status of real estate in 2024.
Survey of Consumer Expectations:
The Federal Reserve Bank of New York’s Federal Reserve Bank of New York Survey of Consumer Expectations (SCE) is a monthly, nationally representative panel survey that has tracked U.S. household expectations since June 2013. The survey typically collects responses from roughly 1,300 rotating panel respondents per month (producing annual samples in the several-thousand range), and covers inflation expectations, labor market prospects, income growth, credit access, and household financial risks. Because it is fielded monthly, it offers high-frequency time series back to 2013. Core labor market and financial fragility measures have been consistently tracked since inception, though specific modules and wording refinements have evolved over time. Public time series and downloadable microdata are available through the New York Fed’s Center for Microeconomic Data.
· Perceived job-finding probability (if separated from current employer): The mean perceived probability of finding a job within three months if one were to lose their job recently fell to about 43%, the lowest level recorded since the series began in 2013. The measure peaked during the 2021–2022 labor market expansion when job switching was strong and has since declined steadily as hiring conditions cooled.
· Probability of job loss (next 12 months): The mean perceived probability of losing one’s job has risen above 15% in recent readings, up from lower levels during the 2021–2022 labor market peak. However, it remains below its pandemic-era high of roughly 21% in April 2020, indicating elevated but not record insecurity.
· Probability unemployment rate will be higher one year ahead: The share of respondents expecting the national unemployment rate to rise over the next year has remained elevated relative to mid-2010s norms, fluctuating in the high-30% to low-40% range recently, consistent with softening labor market expectations but not at its historic maximum.
· Probability of missing a minimum debt payment (next 3 months): The mean perceived probability of missing a minimum debt payment has climbed to roughly 15% in recent data, its highest level in several years and well above pre-pandemic readings, though still below its early-series peak around 2013 and the spike during 2020.
In summary, the job-finding probability has recently reached a historical low, and the debt delinquency probability is at its highest in several years, while job-loss expectations and broader unemployment expectations are elevated compared with recent norms but not necessarily at all-time peaks. These patterns suggest that several key pessimism indicators in the SCE are unusually weak relative to much of the 2013–2025 period.
Recent SCE report on labor market expectations.
The National Financial Capability Study:
I am very appreciative of the people who put together this database because it enabled this publication on pre-retirement 401(k) disbursements.
The FINRA Investor Education Foundation’s FINRA Investor Education Foundation National Financial Capability Study (NFCS) is a large, nationally representative, state-by-state survey of U.S. adults conducted every three years since 2009 (waves: 2009, 2012, 2015, 2018, 2021, 2024), with each wave sampling roughly 500 respondents per state plus D.C. (more than 25,000 respondents per wave). Public reports, questionnaires, and datasets are posted for each wave, and FINRA also provides a merged “tracking” file covering multiple waves (at least 2009–2021). Inclusion and comparability of specific “pessimism” or stress indicators is not perfectly uniform before 2018: some questions were added in later waves (for example, financial anxiety/stress items were introduced in 2018), and some items were asked differently prior to 2015, limiting clean comparisons back to 2009/2012 for those measures.
· Spending more than income (cash-flow stress): Share spending more than income was 19% (2018), 19% (2021), and 26% (2024).
· No difficulty covering expenses (day-to-day ease): Share reporting no difficulty covering monthly expenses was 43% (2018), 54% (2021), and 38% (2024).
· Emergency savings buffer (three months of expenses): Share reporting they have set aside enough to cover three months of expenses was 49% (2018), 53% (2021), and 46% (2024).
· Credit card repayment discipline (always pay in full): Share reporting they always pay with credit cards in full was 47% (2018), 59% (2021), and 53% (2024).
· Personal financial satisfaction (subjective well-being): Share satisfied with their personal financial condition was 32% (2018), 33% (2021), and 24% (2024).
· Financial anxiety (sentiment-based pessimism; added in 2018): The NFCS introduced financial anxiety/stress questions in 2018. On the core anxiety item, the share agreeing that thinking about personal finances makes them anxious was 53% (2018), 56% (2021), and 63% (2024).
A paper on the most recent wave of the FINRA survey can be found here.
Conclusion
The collective evidence from these eight major surveys—ranging from the University of Michigan’s long-running index to the 2024 National Financial Capability Study—confirms a sustained and intensifying trend of economic pessimism that is increasingly decoupled from headline growth data. This “Boomcession” sentiment is driven by a combination of eroding purchasing power in essential sectors, a perceived breakdown of the link between effort and reward, and a historic decline in housing affordability.
When 75% of citizens doubt the future of the next generation and nearly two-thirds report that thinking about their finances causes anxiety, it suggests that the “Misery Index” of the future may be defined less by unemployment rates and more by a loss of economic agency and the death of the American Dream.
Future research must critically re-examine why the traditional “Misery Index” is failing as a barometer of the public mood. A primary reason for this divergence is that inflation, as a price index, is not the sole determinant of affordability. Three examples of this include:
· The Consumer Price Index (CPI) relies on “Owners’ Equivalent Rent,” which fails to account for the actual cash-flow burdens facing new homebuyers.
· The CPI does not capture the “hidden” inflation of shifting cost burdens, such as the increase in health insurance deductibles or the growing share of premiums paid by households.
· While hedonic adjustments may lower the CPI value of a computer because it is “better” than a previous model, the nominal cost to acquire that essential technology often remains high, squeezing household liquidity in ways the index ignores.
A misery index that incorporates information on the actual determinants of affordability might be more in line with survey data on household views on the economy than the original misery index.
The public mood is not just “bad”—it is becoming structurally cynical. The macro economy is growing but the cost of participation for the average person is prohibitive, and a large portion of our population no longer sees a viable path towards the middle class.
Authors Notes: The readers of this article might also enjoy Not Your Father’s Marriage Penalty and other aspects of this blog. For the blog roadmap go here.