It is generally rare for the person you are interviewing to burst out laughing. But that’s what happened to me recently on a call with Ernie Tedeschi, director of economics at the Yale Budget Lab, who in March completed a three-year term on the White House Council of Economic Advisers. The question that obviously tickled Tedeschi: does the “vibecession“fake? The vibrations that surround the economy – like the way consumers and businesses say what they think – have changed recentlyand not because the economy itself is significantly different from what it was in the recent past. Inflation is down from its peak, but it’s up a bit from where it was earlier this year. The job market is still strongand consumer spending is still strong.
Despite a relatively stable environment, people feel much more enthusiastic. In November, small business sentiment reached its highest level since June 2021, National Federation of Independent Business Optimism Index surveys have revealed. The number of business owners who said they expected the economy to improve and thought it was a good time to expand increased significantly. Business leaders expectations have soared for the fourth quarter, according to the Business Roundtable’s Economic Outlook Survey. CEO forecasts for hiring, capital investment and sales have improved.
Consumer confidence has been on an upward trend for several months, according to surveys from the University of Michigan, and this trend continues until the end of the year. However, beneath this figure there is a significant partisan shift. Republicans’ expectations for the economy improved in December, while Democrats’ expectations worsened. This is part of a trend in economic sentiment: People feel much better about the economy and their prospects when the political party they support is in charge. So I wanted to know if Americans’ deep economic pessimism over the past year — and recent recovery — was just a political mirage?
After an embarrassing laugh for me, Tedeschi responded. “The short answer is no. The vibecession wasn’t fake. The long answer is no, but…” he said. Perceptions of the economy are not limited to the economy itself. This is not to say that people were lying or that their responses lacked real economic motivation, but there is clearly more than the material conditions they face – it is also about their ideological leanings and how how it shapes what they believe. is ahead.
“Perceptions of the economy are definitely deeply partisan,” Tedeschi said.
When people say the economy is bad, they can mean a variety of things: prices are too high, the news they read is negative, the president is old. Feelings are not facts, including when it comes to GDP. Politics largely influences how businesses and consumers say they view the world around them, including when it comes to money.
It’s easy to say that the change in sentiment is due to partisan flag-waving: Now that Donald Trump is headed to the White House, Republicans will say everything is fine, and Democrats will say everything is terrible. But that’s not really what’s happening, said Joanne Hsu, director of consumer surveys at the University of Michigan. When people say their expectations are better or worse, it’s not just the election outcome they’re reacting to, but the policies they think are on the horizon.
“With the election of Trump, people have an idea of how economic policy might change over the next year and over the next four years. So people are expecting tariffs. They expect action on immigration,” Hsu said. “The fact is that people in the population really disagree on whether these policy changes are a good thing or a bad thing for the economy.”
Democrats fear that Trump customs tariffs threatened and promise to undertake mass eviction efforts it will make things more expensive. Republicans, on the other hand, believe these policies will be good for the economy and that Trump will help bring down inflation. Independents, Hsu said, fall in the middle.
The fact is that people in the population really disagree on whether these policy changes are a good or bad thing for the economy.
To a large extent, it makes sense for small businesses and business leaders to look to the future with more sunshine. The deregulation and tax cuts that will likely result from a Trump presidency are music to the ears of the business community.
“They are hopeful that the policies they like will be implemented over the next four years,” Tedeschi said.
Businesses don’t like the idea of tariffs, but many hope there are ways around them or that the president-elect doesn’t take them so seriously. Or they are simply planning to pass on anyway, any price increase for consumers. (There may be some denial among Wall Street business executives and investors, all of whom seem to be unaware of some of the potential downsides of Trump’s policy promises and the instability it could represent.)
Overall, the answer is pretty logical: if you think what’s going to happen is good for you, you feel good. If you think not, it’s the opposite.
Over the past couple of years, much effort has been made to explain vibecession, the phenomenon in which the economy, on paper, looks pretty good, but consumers say it’s terrible (although in many cases , they say that they, personally, are doing very well). No one has come up with a definitive answer to what’s going on, although high prices – even though inflation has calmed – are probably a big part of the equation. But the fact is that people channel a lot of things when evaluating the economy, which is initially a nebulous concept for many people.
In a particularly polarized political environment like the one we currently live in, a person’s red or blue stripes will inevitably influence their evaluations. Although this is a political issue, it is also a partisan issue, and that partisanship continues to get worse.
Hector Sandoval, director of the economic analysis program at the University of Florida, published a study early 2024, examining the impact of national elections on consumer confidence and spending intentions. The study found a “significant improvement in consumer morale” when a person’s affiliated party wins a presidential election. The study also found that over the decades the fluctuations had become more pronounced.
People spend as if they are much happier than they are.
“It’s actually become more extreme,” Sandoval said. In 1992, when Bill Clinton was elected, there was some partisan shift, but it’s something one “may not even bother” to note, he said. This happened in 2000, when George W. Bush was elected, but also to a relatively benign extent. “But then, I will say, 2008, 2016, 2020, and especially 2016, that’s when you’re surprised to see how the gap gets wider and wider,” Sandoval said.
Michigan has only regularly asked respondents about their political leanings since 2017, but Hsu said polarization has become increasingly evident in its data over the past 40 years. The gap was particularly pronounced during the first Trump administration, she said.
Whether you think the economy is good, bad, or somewhere in between, we can probably all agree that the way we measure people’s feelings about the economy is a little off. It’s no longer really possible to say, “The economic data says XYZ so, so consumers will feel ABC.” It’s unclear whether this is a temporary blip due to the pandemic or a permanent shift in how people relate to the economic forces around them. What makes things even more complicated is that what consumers say they feel isn’t even reflected in what they do. Throughout the past few years of unrest, consumers have said everything is terrible and I still spent a lot of money. The bank accounts of many people, especially those in the middle and high income brackets, are functioning well.
“People are spending like they’re much happier than they are,” Tedeschi said. He added that this disconnect between vibrations and data meant that when vibrations improved, it might not mean much, practically speaking. “Even if consumer confidence recovers, even if the vibecession disappears, that could mean there won’t be much upside potential for the real economy,” he said.
Economic sentiment is of course an economic indicator, but it is also a political indicator. In some ways it might be a better guide as a poll about political job performance rather than people’s actual financial situation. Even if the vibecession wasn’t a fake or a giant mirage, there’s a lot more going on beneath the surface. If you’re a Republican, you’re feeling really good in February. If you’re a Democrat, enjoy the last of these good vibes now.
Emilie Stewart is a senior correspondent at Business Insider, writing about business and economics.