'Vibecession' Alters Economic Behaviors, Shifts Spending Patterns

• Vibecession Overview: Coined by Kyla Scanlon, "vibecession" describes today's economic mood, marked by a mismatch between data and public perception despite no official recession declaration.
• Contributing Factors: Factors like high mortgage rates, persistent inflation effects, and minimal growth in full-time employment contribute to the ongoing vibecession.
• Impact and Outlook: Despite negative sentiment, consumer spending remains steady, supported by job security. Addressing public perception and maintaining economic indicators are critical for sustained growth.

The phrase "vibecession," coined by Kyla Scanlon, sums up the state of the economy today: a mismatch between economic data and the public's gloomy outlook. There is a sense among many that the economy is in a slump, driven more by mood than by real economic realities, even though the National Bureau of Economic Research (NBER) has not declared a post-pandemic recession.

Scanlon first used the term "vibecession" in June 2022 to characterize this occurrence. Consumer confidence was falling, inflation was skyrocketing at 9.1%, and the Federal Open Market Committee (FOMC) had recently raised interest rates by 75 basis points. Notwithstanding the fact that a recession was never formally proclaimed, this combination created a generalized feeling of economic doom.

A recession is often defined as two quarters of GDP decrease, which started in 2022. But shortly after, the GDP started to rise again. Strong labor market data were cited by the Federal Reserve as proof that a recession was unlikely. As the University of Michigan's Consumer Sentiment Index demonstrates, consumer confidence has not increased above pre-pandemic levels despite these encouraging signs.

Factors Contributing to the Vibecession

Several factors contribute to this lingering vibecession.

• Economic Uncertainty in the Housing Market: Mortgage rates at 20-year highs hinder new home purchases, creating financial uncertainty.
• Persistent Effects of Inflation: Lingering high prices in essentials like food and fuel despite decreased inflation rates.
• Minimal Growth in Full-Time Employment: Job market recovery skewed towards part-time positions, impacting consumer confidence.
• Negative Media Influence: Constant negative news cycles and political rhetoric foster a pessimistic economic outlook among the public.

Public Perception's Impact on the Economy

The impact of this negative sentiment on the economy is significant. When consumers believe the economy is in trouble, they tend to reduce spending, which can hinder economic growth. However, despite the pervasive negative sentiment, consumer spending has remained relatively steady. Job security and disposable income continue to support economic activity, preventing the negative sentiment from translating into a full-blown economic downturn.

There is hope that the vibecession will fade as economic indicators continue to improve. Maintaining consumer confidence and addressing public perception will be crucial for sustained economic growth. Balanced media reporting and realistic public expectations are essential to support economic stability and prevent sentiment-driven economic slowdowns.

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