The Vibecession

Have you heard of a vibecession (pronounced like recession but beginning with “vibe”)? Apparently the term was coined by an economics blogger a couple of years ago and it’s been showing up quite a bit lately. I heard some people discussing the term the other day as if it were old news. Well, not to me…

We’ve discussed this idea several times before but it goes something like this, according to the blogger, Kyla Scanlon, who wrote an interesting piece about her idea back in 2022 (a link is below if you’re interested).

“Vibecession – a period of temporary vibe decline where economic data such as trade and industrial activity are relatively okayish.”

Relatively okayish – I like that. It seems to meet the moment. To me, a vibecession happens when enough people feel bad enough about their outlook, regardless of their current situation, that they cut back enough on spending for it to impact national economic data. A self-fulfilling prophecy, essentially. Have we seen one and/or are we in one? It depends on who you ask.

Sentiment was definitely negative in 2022 when the termed originated. Inflation peaked that summer and the Fed quickly raised interest rates to fight it. Stocks had a bad year as did bonds. Median national home prices dipped in response. And consumer sentiment cratered that summer, as you would expect from combining negative forces like these.

All of that happened and we still managed to skip an economic recession, at least going by the official definition. But we absolutely saw a vibecession, or whatever else you want to call it, and it lingers for many. The issue now is that much of what fed into the confused and somber mood ended up being transitory, at least by traditional economic metrics. National average inflation has come back to more normal levels. Interest rates are high compared to recent history but aren’t especially high when compared to long-term averages. Bonds have been struggling while stocks have come roaring back, and home prices continue to make record highs. Additionally, the job market is in good shape and, perhaps surprisingly, investment in US manufacturing has been making a big comeback.

That said, consumers still say they feel down in the dumps. This is odd because, just to cherry-pick one contrary data point, people are flying. The TSA reports that roughly 2.5 million US passengers flew per day around Independence Day last week and 3 million flew last Sunday, a single day record! Perhaps that’s partly due to the average cost of plane tickets being lower than 2022, according to tracking from the website, Nerd Wallet. This is just one example but consumers continue to spend across the economy even as they express concern over inflation and the job market, to name a couple typical pain points.

So why are so many people still professing to be in good shape now but gloomy about their prospects? Look at the chart below from my research partners at Bespoke Investment Group? Pessimism hasn’t matched up with reality for a while now. Is this cognitive dissonance at work, bad data, or a symptom of some broader issue?

The reasons for this go far beyond the realm of personal finance. People point to the news and social media, politics, and so forth, as feeding into a general sense of negativity and unease. This shows up across the demographic spectrum but seems more prevalent with younger people. I don’t understand all the reasons for this. However, at least on the finance side it’s clear that those with assets have been doing much better than those without. This is by design since our economy and even entire financial system favors those who own assets like homes and stocks. If you rent and don’t have savings, you don’t feel increases in the so-called wealth effect. You don’t benefit from home equity improvement – home ownership is just more unattainable. And rising stock prices don’t help for the same reason. Lots of American consumers have seen inflation in recent years without a way to counteract it. Even the Fed indirectly punishes these folks because borrowing cost more when the Fed raises interest rates. Perhaps folks in this category are more inclined to be surveyed and that skews the numbers? But wouldn’t they be less likely to say their present situation is good? It’s confusing.

Enough negative sentiment can become a self-fulfilling prophecy. The vibecession concept has been showing up more in the culture lately if not yet in most macroeconomic numbers, so it must be gaining traction. Maybe it will reach critical mass or maybe it’s simply an indicator of a gloominess that can, perhaps strangely, exist amid optimism and growth. Whatever the answer this is certainly an odd situation we should all pay attention to.

Here's the link I mentioned above.

https://kyla.substack.com/p/the-vibecession-the-self-fulfilling

Have questions? Ask us. We can help.