The Vibecession: A Tale of Two Economies

In the realm of economics, perception often holds sway over reality. This was never more evident than during the “vibecession” of 2023, a period marked by a stark disconnect between seemingly positive economic data and consumers’ persistently negative outlook. Coined by financial pundit Kyla Scanlon, the term encapsulates the curious phenomenon where consumers felt pessimistic about the economy despite favorable data. This article delves into the depths of the vibecession, exploring the factors that contributed to this economic paradox and examining the recent signs of recovery.

The Great Vibecession: A Persistent Disconnect

Throughout most of 2023, the vibecession held sway, with consumer sentiment surveys painting a gloomy picture at odds with optimistic economic indicators. The Conference Board’s consumer confidence index, a widely followed measure of consumer sentiment, remained stubbornly low, indicating widespread pessimism about the economy. This sentiment was echoed in other surveys, such as the University of Michigan’s Index of Consumer Sentiment, which also showed persistently negative readings.

The University of Michigan’s Consumer Sentiment Index: A Glimmer of Hope

However, in December 2023, a glimmer of hope emerged from the University of Michigan’s Consumer Sentiment Index. The index surged nearly 10%, far exceeding forecasts and signaling a more positive view of current business conditions and job availability. Notably, consumers also expressed less pessimism about the future, suggesting a potential shift in sentiment.

Why the Lag in Sentiment Recovery?

Economists have pondered the reasons for the delayed recovery in consumer sentiment. One explanation lies in the erosion of real wages over several years, meaning that wages failed to keep pace with inflation. This trend reversed in late 2022, potentially contributing to improved sentiment in 2024.

Another factor may be consumers’ inexperience with inflation. Chief economist Jay Bryson of Wells Fargo suggests that many Americans have not experienced sustained inflation before and needed time to adjust to the new reality of higher prices.

The End of the Vibecession: A Brighter Outlook

As consumers become accustomed to higher but more stable prices, Bryson predicts improved sentiment surveys and the end of the vibecession. Consumers will recognize that their wages have increased, offsetting the impact of higher prices. This realization could lead to a more positive outlook on the economy, buoyed by the expectation of continued wage growth.

Conclusion: From Disconnect to Convergence

The vibecession was a period of economic disconnect where consumers’ negative perceptions of the economy contrasted with positive economic data. However, recent sentiment surveys indicate that consumers are becoming more optimistic, suggesting that the vibecession is coming to an end. As consumers adjust to the new economic reality and recognize the gains made in wages, their sentiment is likely to converge with the positive data, signaling a more harmonious economic landscape.