Is the Vibecession Over?

a shift in the vibe supply

a shift in the vibe supply

Apologies for missing last week! I am in the final edits of my book and it’s [insert word synonymous with pain, stress, etc here]. But onwards!

---

A lot of people have been asking “is the vibecession over?” the past few weeks, and with Jerome Powell stating in the FOMC presser yesterday that

“The staff now has a noticeable slowdown in growth starting later this year in the forecast, but given the resilience of the economy recently, they are no longer forecasting a recession”

It certainly seems that both the vibecession and the fear of a Recession are somewhat… gone?

Of course, this announcement came with a series of jeers on Twitter from people proclaiming that we’ve been in a Recession since before time even began, but this statement from Powell is good, for those that like data. He then said “we are going to vibecheck the economy before we decide to do before our next meeting 8 weeks from now.” More data. Data dependent.

But things are looking okay. Growth is moderate. Inflation is cooling. Labor market humming along. Real GDP came in stellar today at a 2.4% annualized growth rate¹. Powell even highlighted the vibes

"I would say that having headline inflation move down that much...will strengthen the broad sense that the public has that inflation is coming down, which will in turn, we hope, help inflation continue to move down."

Rational inattention. The vibes continue to improve.

Things are Getting Better

Vibes are clear in both consumer sentiment and real wages with -

• Consumer sentiment is at all time highs (as gas prices tick down)

• Real wages are up 6% (and ticking down in Europe). In fact, as Arin Dube wrote

Real wages for most American workers (Kyla note: this most is equal to about 80% so this is substantial) are not only higher than they were prior to the pandemic, but they are about what they would have been if the pandemic never happened.

I mean, people spent enough on Taylor Swift tickets that she influenced the direction of entire economies! A soft landing is the base case for most investors. People are feeling decent.

And We Seemingly Skirted a Recession

We seemingly avoided a big downturn due to a combination of mostly -

1. Big Fiscal - The EmployAmerica team has been beating this drum, and JP Morgan released a note saying basically the same thing - the IRA, IIJA, the CHIPS Act, etc² - the government is spending money, and that’s been a floor to the economy.

   1. From the WSJ - “The $700 billion in subsidies and investment that the Biden administration has mobilized through the Inflation Reduction Act and the Chips Act has unleashed a string of plant projects related to semiconductors, electric vehicles and renewable energy. Spending on manufacturing construction was up a whopping 77% in May from a year earlier”

2. Companies issuing debt at low rates - Tracy Alloway wrote about this, and companies were able to lock in super low borrowing costs on debt (similar to many homeowners) and so they are golden, even as the Fed raises rates. Net interest payments are no problem, so a lot of companies are insulated from the Fed.

And just as a flag on doomerism - Steven Kelly shared - “one of my favorite charts of all-time: the lost returns from listening to esteemed, perennial doomsayers”

But -

Yet, the vibes are not perfect.

• Student loan payments are starting back up, which could feel like a 5% paycut³.

• It’s bifurcated- There are drops in Medicaid enrollment, rising hunger, maybe rising homelessness too, as Jeff Stein reports.

• Housing is still a nightmare - as Rick Palacios Jr highlights, there are 86.1 million homes in the U.S. and only 1 million are for sale⁴, which is VERY low. Someone with a $3k monthly budget could have bought a $510k home a year ago and now can really only get a $450k home with today’s rates as Redfin wrote.

• Workers are going on strike which is important! Go workers! But definitely puts pressure on the economy and as Noam Scheiber wrote, underscores the changing face of the economy - “the fracturing of work into lower-paying, degraded pieces”

Diane Swonk of KPMG highlighted some more pressure points -

Brace for a sharper slowdown in spending over the summer and fall, as tighter credit condition collide with the crimp from the end of student loan forbearance and tighter credit conditions. Rejection rates for vehicle loans hit a record high in recent months and have begun increasingly unaffordable - understatement. Rejections for other types of loans are close to record highs.

I guess on a human note, I’ve been struggling with describing the economy recently. I’ve written on doomers and the cult of nostalgia and how we seem to get caught in these infinite repeating loops of thingbadthingbadthingbad.

Vibes

I think it was Noahpinion who said something along the lines of “we can spend all day trying to figure out why something happened, but we need to move forward” (a butchered paraphrase). Which is true.

There are a few reasons why I think the vibes have been off⁵

Abstraction

There’s a paper around the ‘blurry vision bias’ and how people talk in big grand sweeping gestures and how that doesn’t really work. I think that’s the problem with a lot of stuff now - it has no end state. We have a lot of random AI wrappers proclaiming big things - but what’s the vision? What’s the goal? As Ethan Mollick wrote -

A paper on how to do it takes its title from an apocryphal story where JFK met a NASA janitor late at night: JFK: Why are you working so late? Janitor: Because I’m not mopping the floors, I’m putting a man on the moon!

We seem to be missing that big national goal these days. Yet -

Vanity

A lot of people think that the world is built for them. Midwest Elitist (lol) wrote -

We are long past the time when people can walk past a book, magazine, or show, say “that’s not for me” and move on. Not everything needs to cater to your worldview. The belief it does is the greatest form of vanity in America right now.

People like to have things served to them and only them. It’s chronic individualism, etc. Metaphorical wars as Fukuyama wrote about.

Contempt

Albert Camus (h/t visa for this) said

The aim of art, the aim of a life can only be to increase the sum of freedom and responsibility to be found in every man and in the world. It cannot, under any circumstances, be to reduce or suppress that freedom, even temporarily. No great work has ever been based on hatred and contempt. On the contrary, there is not a single true work of art that has not in the end added to the inner freedom of each person who has known and loved it.

I think that there is a lot of self-limiting behavior that transfers over to broader pain points. Ronen wrote - “Imagine never doing anything athletic just because you think you won't make it to the Olympics. That's most people's relationship to making art.”

Ahh! I know it sounds woo-woo but I truly think that people don’t have physical or emotional outlets, and these vibes get kinda trapped.

I mean I was once told by an art teacher that I was quite bad at painting, and I never picked up a brush again.

I circle this point a lot (and recognize it’s abstract!) but I think that in order to encourage a true vibe change (a shift of the vibe supply if you will) we need to find ways to tell better stories, especially on a fiscal level (*how* is reshoring helping people, *why* is Bidenomics a banger, really get into the narrative), encourage people to follow passions, even if the path is murky.

But overall, despite the windy nature of this newsletter, the vibecession seems to be cleared, and hopefully, a Recession too. This poem really doesn’t have an overarching thematic into the piece but it’s quite beautiful.

Why Offshore Wind Is Suddenly in Trouble | Fintech valuations have fallen. Where do they go from here? | One crop uses more than half of Utah’s water. Here’s why. | How to Use AI to Do Stuff: An Opinionated Guide | Human Extinction: A Brief Guided Tour of the Book | A Year of Cosmic Wonder With the James Webb Space Telescope | Silicon Valley’s Quest to Build God and Control Humanity

1. For the 2Qs people

2. Good piece from Mike Konczal comparing Bidenomics and Reaganomics

3. And people were SPENDING with this extra money

4. And there are 600k more realtors than homes for sale

5. Matt Darling would not be stoked that I am speculating without much evidence but alas