How do you feel about the state of the economy?

July 2, 2024

In more contemporary terms, what are your “vibes” telling you?

Are you feeling confident and comfortable?

Or are you feeling a nagging worry that things aren’t going well?

You are not alone if you are experiencing a disconnect between official economic data and your perception.

This phenomenon has recently been dubbed a “vibecession” in popular media – a term that captures the gap between economic indicators and public sentiment. I do not know who makes up these words, but someone does. You could easily substitute emotions instead of vibes if that is more palatable.

Officially, the economy is in rather good shape.

✅Recent data suggests that inflation is moderating.

✅The jobs market is still steaming ahead, with wages and hiring increasing in May.

✅Markets have been on a tear, and the S&P 500 has hit 30+ record closes this year.

By most measures, economic prospects are solid.

❌ But many Americans are still feeling pessimistic about the economy.

In a June Quinnipiac University survey, 70% of Americans reported that the economy was doing poorly.

This was the negative sentiment even when 61% said their financial situation was good or excellent.

That gap between data and opinion? That’s the “vibecession”.

The challenge is that it can become a self-fulfilling prophecy.

If too many people believe the economy is floundering and a recession is imminent, this can slow economic growth.

What is contributing to the gap in perception?

I think it could be many things.

Many Americans were left out of the recent asset (housing and stock market) price boom, and they’re struggling with high prices. Inflation for the items they buy all the time, like food, gas, and insurance, has all moved much higher during the past three years.

Housing prices remain high, and home ownership has become out of reach for many (especially young Americans). We also have a 24-hour news cycle hammering us with gloomy headlines. It is also an election year, which means there is a lot of spin out there with different economic numbers being thrown around in hopes of capturing your votes (or campaign donations).

Bottom line: Though the vibes are weird, the economy and markets are still doing well.

What’s most important is that we don’t let vibes or emotions push us away from the goals and plans we’ve created.

Vibes or emotions are one of the main reasons we use formal, written financial plans for all our clients. Your investments are working towards a stated goal and objective, making it harder to get influenced by vibes or emotions and make short-term decisions because of media noise.