What is consumer sentiment, and what does it tell us?

If you tune into any financial-related news, you are bound to hear some mention of ‘consumer sentiment.’ In May, for instance, it was reported that consumer sentiment had hit “a six-month low” and “notched its biggest drop since 2021, reflecting the persistent tug of inflation on household budgets and fueling fears that rising prices, unemployment and interest rates could all worsen in the coming months,” said The Washington Post.

While you may be able to infer well enough what the phrase refers to, what is not quite as readily apparent is how exactly consumer sentiment is measured — and why it’s a metric that matters.

What is consumer sentiment?