US consumer sentiment remains near record lows this month (Exhibit 1), even against the backdrop of a full-employment economy; GDP growth of over 2% per annum; record-high stock prices; and record-high home values.
The mismatch between positive macro data and negative consumer sentiment might seem surprising. But in my view, most people do not care about high-level economic statistics as much as they care about their personal experience—and with the cost of living rising, a substantial portion of American consumers are facing affordability concerns and a sense of relative deprivation.
EXHIBIT 1
Consumer Sentiment Remains Near Its May 2026 Record Low
University of Michigan Consumer Sentiment Index
As of October 2026
Source: University of Michigan, Haver Analytics
At a high level, things look great. Household net worth rose $11.3 trillion to hit a new record high of $185.7 trillion in Q2 of this year, bringing the average US household’s net worth to $1.37 million. But as I explained in my mid-year outlook, this figure is misleading as it does not represent the experience of most Americans. While nearly a third of total household net worth (32.5%) is held by the top 1% of households, only 2.3% is held by the bottom 50%. Additionally, the record stock market gains and soaring home values contributing to household net worth do not apply to many Americans, since ~35% do not own their homes and ~42% are not invested in the stock market. Most Americans rely on real wages for income—and those have been buffeted by three successive bouts of inflation in 2022, 2025, and 2026.
I believe the decline in consumer sentiment reflects these realities, and two key costs—gas prices and home ownership costs—are only adding to the challenge.
While gas prices represent a small portion of most households’ budgets, they tend to have an outsized impact on the consumer psyche given that it is impossible for people not to see them every time they drive. The sharp increase in gas prices due to the Iran war is therefore likely playing a significant role in recent University of Michigan Consumer Sentiment Index data and other readings of consumer confidence.
Home ownership costs are the other elephant in the room, and here the story is more disheartening. While gas price increases are likely to subside when the Iran conflict ends, there seems to be no light at the end of the tunnel for housing costs.
As I wrote in late September, the monthly payment for a typical homebuyer today is 139% higher than it was just before the pandemic due to the combination of rising home prices and soaring mortgage rates. These costs at least partly explain why the median age for a first-time homebuyer reached 40 years of age in 2025 versus only 30 years of age in 2008.
Against this backdrop, young adults are increasingly seeking to accumulate savings by living with their parents. Realtor.com reported that in 2025, 25.2 million adults under the age of 35 were living with their parents. At 33% of the respective population, this is the second-highest level in history after a brief period during the pandemic when it reached 33.6%—and 70% of these tenants are employed.
So, what does this all mean for the economy? In my opinion, it means the US economy is less resilient than it might appear.
The current 2%-plus real GDP growth rate is largely being driven by the AI capex boom, which has lifted financial markets and benefited the wealthy households that own the majority of shares—but it does not reflect the experience of most Americans. If that AI capex boom starts to lose steam—and if investors recalibrate growth expectations for the companies directly and indirectly benefiting from the investment surge—there could be an air pocket for GDP growth.
This does not mean a recession is inevitable or even likely, but it does mean that caution is warranted.
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Published on 14 October 2026.
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