The Disconnect Between Economic Data and Consumer Sentiment
Economic indicators suggest that the economy is thriving, but many consumers are feeling the opposite. This disparity between economic data and consumer sentiment has been dubbed the “vibecession.” According to experts, this phenomenon is likely to continue, and possibly even worsen, depending on the policies implemented by the new administration.
The Economy vs. Consumer Sentiment
Nearly half of voters believe they are financially worse off now than they were four years ago, despite economic metrics showing growth. Inflation, although slowing down, remains a significant burden for consumers. The job market, while normalizing from its previous red-hot state, still shows signs of weakness. This disconnect between economic data and consumer sentiment is rooted in the persistently high prices that remain post-pandemic.
The Impact of Inflation
Inflation, or the rate at which prices for goods and services increase over time, has come down, but prices overall remain high. This makes for daily sticker shocks when buying groceries, getting a burger, paying rent, and filling up the car. The consumer price index grew to a seasonally adjusted 0.2% in September, putting the annual inflation rate at 2.4%. While the Federal Reserve is still concerned about inflation, signs of weakness in the labor market are emerging.
The Labor Market
The quits rate decreased by 1.9% in September, and hiring has slowed down. The economy only added 12,000 jobs in October, lower than the forecasted increase. However, the unemployment rate continues to hold steady at 4.1%, and wage growth is up 4% from a year prior. This suggests that the labor market remains firm despite signs of weakening.
The Stock Market and Bond Yields
The stock market rallied after the presidential election results, with the Dow Jones Industrial Average surging over 1,500 points to a record high. U.S. bond yields also rose, with the 10-year Treasury yield jumping 15 basis points to trade at 4.43%. This could be a warning sign, as experts believe the inflation story is far from over.
The Future of the Economy
Depending on the policies enacted under the new administration, the inflation problem might worsen. High-rate tariffs on imported goods could wipe out progress made to reduce inflation, and fiscal plans could potentially add trillions to federal debt. These moves would be inflationary, experts warn. The disconnect between economic data and consumer sentiment is likely to continue, and possibly even worsen, if consumers are forced to deal with extra costs associated with tariffs every time they go to the grocery store.
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