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What does vibecession mean and will it continue in 2024?

It can be difficult to explain the grim economic outlook when key indicators seemed fine. The term vibecession connects data and consumer perceptions.

As it turns out, people's feelings can influence the economy.

It seems like a recession has been looming for more than a year now. Some say it's going on, some say it's on the horizon and others say it's yet to come. But the data shows the economy has been relatively good for the past couple of years. But people's perception of the economy -- the "vibe" -- has been worse than reality.

This phenomenon was dubbed a vibecession in 2022. Since then, the term has caught on to describe the disconnect between hard and soft economic data. The term is a portmanteau of the words "vibe" and "recession."

What is a vibecession?

The term vibecession was coined by writer, content creator and economics educator Kyla Scanlon in a video response to science educator and video creator Hank Green, who posed the question, "Are we in a recession?" to Scanlon. Scanlon went on to write about the term in her June 2022 article "The Vibecession: The Self-Fulfilling Prophecy."

Scanlon defines a vibecession as "a period of temporary vibe-decline where economic data such as trade and industrial activity are relatively okayish." Scanlon cites the University of Michigan Index of Consumer Sentiment in her video and the Present Situation and Expectations Indices from the National Bureau of Economic Research in her article. The Index of Consumer Sentiment is based on a monthly survey of 600 consumers containing subjective questions such as, "Are you financially better?" and, "Is next year going to be a good time to buy a fridge, stove or washing machine?"

In other words, a vibecession is when people have a more negative perception of the economy than what most economic data suggests. The negative perception can have a material effect on the economy, as consumers with economic anxiety pull back spending and businesses raise prices in anticipation of the worst. It's a disconnect between economic data and consumer sentiment that can affect future economic data.

The specific period that Scanlon refers to is a period in 2022 when consumer expectations were far lower than the economic data suggested. Inflation was higher than any time in recent years, growth slowed and consumer sentiment was the lowest that it had been in decades. Despite this, several industries that indicate a healthy economy thrived, including retail, hospitality and travel. Incomes also rose, and unemployment was near record lows.

Scanlon and other speculators worried that low consumer sentiment would plunge the economy into an actual recession. Scanlon also pointed out that Gross Domestic Product (GDP) and Gross Domestic Income (GDI) diverged during this period. Both are indicators of economic growth but have different data inputs.

GDP is a measurement of consumer spending, business investment, government spending and net exports of goods and services. GDI tracks wages, profits and taxes. GDP fell in the beginning of 2022, whereas GDI continued to grow. Scanlon pointed to this to explain why the economy was in fair standing at the time.

Why does it feel like there's a recession?

Despite decent big picture statistics, consumers are having trouble managing expenses. The job market has shown signs of instability from the consumer perspective. The tight job market, high prices and a negativity bias in the press surrounding layoffs all contribute to the negative vibes experienced among consumers.

Approximately 45% of Americans making more than $100,000 per year live paycheck to paycheck, according to data from LendingClub. Experts attribute this in part to a phenomenon known as lifestyle inflation, or lifestyle creep. This is when consumers begin to spend more as they make more money and can't save as a result. More than 62% of all Americans also live paycheck to paycheck as of November 2023, making it more difficult to pay for basic needs such as food and energy.

Layoffs are also a factor. Between 2022 and 2024, there were waves of mass layoffs in the media and tech sectors. Despite this, the overall layoff rate is relatively low, according to the Bureau of Labor Statistics. Still, because of the scale and visibility of the mass layoffs in tech and media, there was likely an effect on consumer sentiment. Workplaces are generally hesitant to lay off workers off due to recent labor shortages, and employed workers are staying put in their jobs.

Despite a good job market, consumers are finding it difficult to get work. Unemployment hit a 54-year low at 3.4% in January 2023, and the 2024 market is also off to a solid start. Yet unemployed workers receive an average of four callbacks for an average of 30 jobs applied to, according to an Insight Global survey. Most unemployed Americans, especially young Americans, report being burned out by the job hunt. The time it took for the average company to hire an employee hit an all-time high in 2023 as well, according to Josh Bersin Company and AMS.

These factors contribute to the overall recession anxiety that Americans feel and point to real pain points in the economy not consistently reflected by big-picture economic indicators such as GDP.

Has the vibecession ended?

In early 2024, experts and news outlets are signaling the end of the vibecession. The Michigan Index of Consumer Sentiment has risen dramatically in the last months of 2023 and early 2024. Expected inflation has simultaneously lowered. Media headlines taking on a positive tone also had an impact on the waning vibecession.

Scanlon noted in a February 2024 interview with Yahoo Finance that while inflation is approaching the Federal Reserve's target of 2%, prices will continue to be elevated but will not increase the way they had in the past. Scanlon also said an erosion of trust between consumers and media might stem from the fact GDP is not always an accurate representation of the people's perceptions of the economy.

In short, the vibecession is waning because inflation and the messaging around it is too. But some consumer frustrations will persist regarding high prices and other economic pain points.

Vibecessions of the past

The term vibecession is, in some ways, just a rebranding of economic theories that have existed for decades. It closely resembles economist John Maynard Keynes' theory of "animal spirits," which describes how people's emotions affect economic decision making. In his 1936 publication, The General Theory of Employment, Interest and Money, Keynes explains how animal spirits affect consumer confidence. This theory laid the groundwork for the field of behavioral economics and Scanlon's theory of the way consumer sentiment can have tangible economic effects.

Editors note: The information in this article was sourced from internet research, including interviews and publications from Kyla Scanlon.

Ben Lutkevich is the site editor for Software Quality. Previously, he wrote definitions and features for Whatis.com.

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