The state of consumer sentiment has remained largely depressed, despite some marginal improvements in recent months. This is quite perplexing considering the current low joblessness, increasing wages, and overall economic growth. With these favorable conditions, such a widespread negativity seems rather abnormal.

Enter Quantian, a prominent figure in the realm of Finance Twitter, who decided to delve deep into the data. In an effort to forecast consumer sentiment, Quantian meticulously constructed a model using nine variables including inflation rate, house prices, dollar strength, stock prices, and more. The remarkable outcome? The model successfully predicted consumer sentiment with an impressive 87% correlation to the trusted University of Michigan series, using historical data from 1978 to 2019.

Buoyed by this triumph, Quantian went a step further and employed the same model to forecast sentiment amidst the onslaught of COVID-19. However, as the chart vividly demonstrates, the model faltered and failed to accurately capture the impact of the pandemic.

Without losing momentum, Quantian carried out an additional regression analysis, with ChatGPT providing valuable support. This analysis focused on five key factors: unemployment rate, year-over-year consumer price growth, year-over-year house price growth, mortgage rates, and gasoline prices, utilizing data spanning from 1990 until the eve of the COVID-19 crisis.

Intriguingly, these endeavors shed light on the mysterious cloud of pessimism that continues to envelop consumer sentiment. Despite the nuances observed during these investigations, one thing remains certain – understanding and predicting consumer sentiment in these tumultuous times is an ever-evolving challenge.

A Shift in Consumer Sentiment during COVID-19

During the COVID-19 pandemic, there has been a noticeable shift in consumer sentiment. Quantian, a prominent research firm, conducted a study to analyze this change and discovered some intriguing findings.

Before the pandemic, Quantian had developed a model that accurately predicted sentiment with an impressive 86% correlation. However, following the outbreak, this model started overestimating sentiment significantly.

To understand the reasons behind this shift, Quantian re-estimated their model and identified three key takeaways:

Changing Consumer Preferences

One of the major findings was that consumer preferences underwent a substantial change during COVID-19. The priorities of consumers shifted, and their concerns about unemployment decreased significantly. Surprisingly, they now expressed a desire for housing prices to fall rather than rise and expressed strong disdain for high interest rates.

Sensitivity to Economic Factors

The research revealed that Americans have become more sensitive to inflation and less sensitive to unemployment compared to historical data. This change in sensitivity can be attributed to the economic uncertainty caused by the pandemic.

Rising Mortgage Rates and House Prices

Quantian also highlighted that a significant driver of the current unhappiness among Americans is the rising mortgage rates and house prices. These factors have added to the frustration felt by individuals and have contributed to their negative sentiments.

Looking Ahead

While these findings provide valuable insights into the current sentiment landscape, it's important to acknowledge that consumer preferences can change over time. If disinflation continues, it is possible that American economic views will gradually return to a more normal pattern.

However, at present, Americans are greatly dissatisfied with inflation and also hold negative views on high interest rates. These sentiments reflect the current economic scenario and emphasize the need for effective measures to address these concerns.

In conclusion, the study conducted by Quantian sheds light on the significant changes in consumer sentiment during COVID-19. It serves as a valuable resource for understanding the dynamics of consumer behavior and the impact of economic factors on their preferences.