Have you heard of the “vibecession?” It’s a term for the present situation where headline economic data seem strong, but no one really feels it in their bones. I like this explanation from Fidelity:
You may have heard that we’re in a “vibecession.” If you haven’t heard the term, you still may be feeling it in your own life.
But what is a vibecession?
It’s the striking disconnect between the state of the US economy, which currently is still strong, and the way people feel about it, which is meh at best.
A recent Harris poll conducted for the Guardian1 found that about half of Americans think the US is in recession, that unemployment is at a 50-year high, and that the S&P 500 is down so far this year. None of these things is true.
So what’s the real deal with the economy?
Why the economy looks strong
The headline on the economy is that it is still strong but has softened enough to perhaps allow the Federal Reserve to lower its benchmark interest rate later this year.
The job market: After showing remarkable strength and resilience since the pandemic, the job market has started to cool off significantly. The unemployment rate has risen to 4.1% from 3.6% in June 2023, and the number of job openings continues to trend downward.
Inflation: The overall inflation rate has cooled significantly, but not quite to the level the Fed wants to see. What’s more, the core inflation rate, which strips out food and energy costs, has stayed stubbornly high, remaining above the Fed’s 2% target. That tells economists there may still be underlying inflationary pressure beyond the volatile food and energy sectors.
Economic growth: The economy lost a lot of momentum late last year, in part because consumers started tightening their belts after 2 years of inflation and post-pandemic revenge spending. But it didn’t last. The latest report on gross domestic product showed the economy’s growth rate doubled in the second quarter, propelled once again by continued consumer spending. Suddenly, murmurs of a potential recession have cooled.
Why the economy feels weak
If you’re not an economist, those things may not even cross your radar. But pocketbook issues sure do. By most measures, those issues are still putting the squeeze on consumers.
The price of food: While the rate of inflation for food has come way down, that doesn’t mean the cost of food is decreasing. It’s just rising a lot more slowly. Food prices have risen more than 25% since January 2020. So if your family was spending $200 a week on groceries before the pandemic hit, today you could be spending $250 a week—more than $2,700 a year to squeeze into your budget. It’s a constant, nagging reminder of inflation.
The cost of borrowing: Whether you’re trying to buy a house or a car or pay for home improvements, it costs much more to borrow now than it used to. While many consumers locked in low rates before the cost of borrowing started to rise, doing anything new is getting more expensive on 2 fronts—prices and financing.
Buying a home: Those high interest rates, coupled with climbing home prices, have made buying a home much harder than it has been in recent decades.
To be considered affordable, the cost of owning a home should be no more than 30% of income. By one measure, that share of income has risen to 43.9% from a low of 27.5% in 2020.
The stock market
The same survey that showed many Americans believe we’re in a recession also showed that nearly half believe the S&P 500 is down for the year, when in fact it is up more than 14% so far in 2024.
More than 60% of Americans own stock, according to Gallup polling, though many of them are investing through retirement accounts, so the growth they have seen isn’t helping defray the cost of living today. This may help explain why, as the market keeps hitting new highs, consumers have greeted the news with a shrug.
