MW The economy looks great on paper - but this split in consumer mood spells trouble

By Mark Hulbert

Recession is more likely when consumers are gloomy about the economy and their own finances

Recent improvements in American consumer sentiment aren't as positive as they otherwise look.

That may come as a surprise, since those developments appear quite positive. One of the two major consumer-sentiment measures, the Conference Board's Consumer Confidence Index $(CCI)$, increased 2.2 points in February to 91.2. That came on top of an upward revision of the CCI's January index reading from 84.5 to 89.0 - erasing what otherwise would have been a 12-year low for the CCI.

Also inching up has been the second of the two major consumer-sentiment measures, the University of Michigan's Index of Consumer Sentiment $(UMI)$. The index rose in February to 56.6; it was as low as 50.3 in November.

The reason recent increases in the two consumer-sentiment indexes aren't unambiguously good news is that a better predictor of recessions is the spread between the two indicators. The chart above shows this spread, going back to 1979, which is when monthly readings of the two indexes first became available. The chart also shows when U.S. recessions have occurred, and as you can see, a recession more often than not happens whenever the spread rises to a high level and then begins to retreat.

One of the rare false signals occurred in 2023 and 2024, when the spread began to retreat from its record high. But the spread soon reversed and by last May was back close to all-time highs. The spread has narrowed considerably since then, and stands almost 12 points below its May 2025 high - enough of a drop to trigger concern.

Why the CCI-UMI spread is a good indicator

The spread between the two major sentiment indexes is revealing because, despite their apparent similarity, they measure distinct aspects of consumers' mood. The CCI gives greater weight to what consumers think about the economy in general, while the UMI more heavily reflects what consumers think about their own personal circumstances. A spread as wide as it is now means that consumers have greater confidence about the U.S. economy overall than in their personal situations.

We see this contrast in people's attitudes toward the job market, for example. Things look good from a macro perspective, with the U.S. unemployment rate near the low end of its historical range. But from a ground-level perspective, many (if not most) believe that finding a decent-paying job is surprisingly difficult.

A recession becomes more likely when consumers become gloomy not only about their personal prospects but the overall economy as well, which is when the CCI-UMI spread begins to narrow.

It's too early to know whether the recent narrowing means a recession is imminent, or whether the CCI-UMI spread will, like it did two years ago, reverse course and begin to widen. Still, we know enough to conclude that recent improvements in consumer sentiment readings aren't the universally good news they appear to be.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

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-Mark Hulbert

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March 02, 2026 08:10 ET (13:10 GMT)

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