Retail Sales vs Consumer Sentiment
Sentiment surveys ask consumers how they feel about the economy. Retail sales measure what they actually buy. The gap between attitude and behavior is often the more interesting signal.
- Retail Sales
- Michigan Sentiment
The University of Michigan's monthly consumer sentiment survey asks about current financial conditions, expected future conditions, and willingness to make major purchases. It's been published since 1952 and is the longest-running gauge of household economic mood. The Census Bureau's monthly retail sales release reports actual dollar spending across retail categories — the lagging counterpart to the survey's forward-looking attitudes.
Usually the two track together: confident consumers spend; worried consumers pull back. Divergences are diagnostic. When sentiment falls but sales hold up, the most common explanation is inflation — consumers are unhappy about prices but continuing to spend because they have to. That pattern dominated 2022, when Michigan sentiment hit an all-time low of 50 while nominal retail sales kept rising.
When sentiment rises but sales weaken, the explanation is usually labor-market or asset-price weakness that consumers haven't yet fully registered. That pattern preceded the 2008 recession by several months.
Indexing both from a common base reveals the wedges that develop. The post-2020 inflation period produced the widest sustained divergence on record — sentiment fell roughly 50 points below its pre-COVID level while real retail sales rose 15%. The wedge narrowed in 2024 as inflation cooled and sentiment partially recovered, but it hasn't fully closed.
Frequently asked questions
Why do retail sales and consumer sentiment diverge?
The most common cause is inflation: consumers report feeling worse about the economy because prices are high, but keep spending because they have to. In 2022 Michigan sentiment hit an all-time low of 50 while nominal retail sales kept rising. When the reverse occurs — sentiment up, sales weak — it usually reflects labor-market or asset-price weakness consumers haven't yet registered, a pattern that preceded the 2008 recession.
Which indicator leads the other?
Consumer sentiment is forward-looking and survey-based, so it tends to move first at turning points; retail sales report actual past spending and lag. Watching the two together is most informative when they diverge — the gap between how consumers feel and what they actually buy is often the more useful signal than either series alone.
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