Vibecession: The disconnect between the economy and the public’s perception – Kyla Scanlon.
Economic trends are driven by data and perception. Some indicators point to strength in 2024. Others show weakness. Between the numbers, Americans feel things are not headed in a positive direction. What is going on? Let’s examine the facts.
(1) The job market is healthy: The U.S. economy has added jobs for 39 consecutive months. The vast majority over the last 12 months has been part-time work. The unemployment rate is moving up, but is just 4%.
(2) Consumer spending has plateaued: Americans are cutting back where they can. This is difficult because higher prices are especially hitting necessities like housing, insurance, and food. People are increasingly relying on credit cards to maintain their lifestyles, and delinquencies on that debt are increasing.
(3) Higher prices create a positive economy with negative vibes: Inflation is around 3.5%. Auto insurance is one of the biggest contributors in 2024. It is up 20% since last year. Its measurement boosts the economy but does diminish our standard of living. Another example is Coca-Cola, which raised prices by roughly 9%. Consumers adjusted by purchasing 6% less product, but this shift still resulted in approximately 3% more revenue, meaning even higher economic growth without the benefit of drinking more soda.
(4) The Federal Reserve is being neutralized by the federal government. The Federal Reserve raised short-term interest rates faster than they have ever been raised, but after three years, we are still waiting for it to do its job and bring inflation down to 2%. The federal government has complicated this effort. Since 2018, it has been overspending as if we have been in a 6-year-long recession. This government spending, and the way the U.S. Treasury is choosing to finance it, is lifting the economy, markets, and inflation.
(5) High prices are becoming the remedy to high prices. The higher prices go, the more consumers want to cut back. It is happening. Retailers see it and are beginning to offer more affordable options. Walmart and Target recently announced that the days of consumers paying more and receiving less are coming to an end. McDonald’s announced recently that it will come out with more affordable meals.
Many Americans would argue that we are in a recession. This is not true. The U.S. economy is growing. The most recent GDP had a real increase of 1.25%. This resiliency will help as we navigate the vibecession. Eventually, we will find our way to even brighter days.
