Consumer Sentiment Falls to 1940s Low Amid 3.8% GDP Growth

American consumer sentiment has dropped to its lowest level since the 1940s, according to the University of Michigan's Index of Consumer Sentiment. The survey, which has run monthly since 1978, shows that 74 percent of Americans believe their government is doing a bad job managing the economy. Kathryn Anne Edwards, a labor economist and policy consultant in Houston, noted that only three times since the 1970s has more than half of the population expressed this level of dissatisfaction. She described the current drop as unprecedented and difficult to articulate in words.

This plunge in confidence contrasts sharply with other economic indicators. The U.S. economy grew by 3.8 percent in the quarter from July to September, making it the fastest growing economy in the Western world. By comparison, Canada is on track for roughly a third of that growth rate. RBC economists Mike Reid, Carrie Freestone, and Imri Haggin wrote that GDP is growing above trend, consumer spending remains strong, and unemployment has stayed stable over the past year. Layoffs continue at ultra-low levels, and stock markets sit at all-time highs.

Despite these macroeconomic gains, voters cite inflation as the primary driver of their anger. Francis Généreux, lead economist at Desjardins Group, observed that for many voters, the economy is now synonymous with rising prices. These price increases outweigh positive job reports, housing affordability, and stock market performance. The two main factors pushing costs higher are U.S. tariffs and the war with Iran.

Gasoline prices spiked immediately when the war with Iran began. While prices have fluctuated amid ceasefire talks, drivers are paying significantly more at the pump than they were a year ago. U.S. inflation has risen to 3.7 percent, and economists warn that it is not yet finished climbing. Much of this increase stems from energy costs, but tariffs have also played a substantial role.

A recent report from the New York Federal Reserve analyzed the 12-month change in consumer goods prices. Researchers found that price growth was still falling in 2024 but reversed in 2025. Mary Amiti, Sebastian Heise, and David E. Weinstein wrote that their estimates attribute this increase to tariffs. By February 2026, tariffs had contributed 2.9 percentage points to goods price inflation. Without them, goods prices would have fallen slightly.

Edwards points to two specific moments when the consumer sentiment index took sharp dives. The first occurred when tariffs were introduced, and the second happened when the war with Iran began. She stated that Americans understand the connection, noting that tariffs have made their lives more expensive. Voters are expected to take this knowledge into the polling booth during this week's midterm elections.

If current polls hold, these elections could lead to sweeping changes in the composition of Congress and who holds power on Capitol Hill. The outcome may determine whether newly elected Senate and House members take action to lower tariffs for Canadians. The results will reveal how voters weigh record GDP growth against the daily reality of higher prices.