The "Vibe-cession"

The U.S. Economy may not be as strong as economists and experts thought (or hoped). First quarter GDP figures originally came in at 1.6%, and were then revised down to 1.3%. These are real growth rates, meaning they factor in the level of inflation and exclude values that are attributable to higher prices.

Speaking of inflation... it continues to trend sideways, though it moved down ever so slightly in April. The Consumer Price Index (CPI) was +0.3% for the month of April, and +3.4% for the last 12-months ending in April. The core version of the index which strips out the price of food and energy (which is incredibly stupid if you ask me?) also increased +0.3% for the month of April, and +3.6% for the last 12 months ending in April.

The Personal Consumption Expenditures index (PCE) increased +0.3% in April, and +2.7% for the last 12 months ending in April. The core version of the index, which also strips out the price of food and energy (which again, is incredibly stupid if you ask me?) increased +0.2% in April, and +2.8% in the last 12 months ending in April. The Federal Reserve (FED) prefers to use the PCE to gauge inflation, and they're targeting a 'sustained path towards 2% growth in PCE' before they decide to lower interest rates. May was more of the same as April - CPI came in at +3.3% year-over-year, and Core CPI was +3.4% year-over-year. PCE and Core PCE in May also seems to be trending slowly in the same direction. One of the 'stickiest' categories continues to be shelter, as measured by the 'Owners Equivalent Rent' (OER) metric. OER is essentially a survey of homeowners who have no intention of renting their houses out, and have no knowledge of the rental market, and asking them what they think they could rent their house out for. These answers are averaged together and provide an estimate on the cost of housing and rent. (I feel like I'm repeating myself here, this is a very stupid way to measure housing?)

This is where I take off my economist hat and be a real human being - you're not crazy, everything is expensive. The inflation rates we're all hearing about are merely just the rate-of-change. The FED wants inflation to come back down to 2%, but all that means is they want the growth rate of prices to come down to 2%, which is still 2% growth on top of all the price increases we've already experienced over the last couple of years. It can be disillusioning to hear 'the economy is growing!' and 'the economy is still strong!' when it doesn't feel like it for the average person. Major news publications have gone as far as to call this a Vibecession. However, all the headline metrics, like inflation, only tell a part of the whole story, and they lack context. There are a lot of underlying statistics to backup the way we're all feeling:

The personal savings rate, on average, is lower than it was before Covid at 4% - we're saving less money. Our personal expenditures, on average, are higher than they were before Covid at 69% (nice) of our incomes - we're spending more on the same things. The job market continues to slow and less companies are hiring. The amount of people quitting their jobs is trending down significantly, indicating people feel like they're less likely to find another job. The amount of people working multiple jobs is the highest it's been since 1995. Most of the jobs we've created over the last 12 months are part-time jobs. Most of the jobs we've lost over the last 12 months are full-time jobs. Small business confidence is trending as low as it was during the financial crisis, though confidence for big businesses is rapidly increasing (shoutout mass layoffs to keep those profit margins elevated!). Credit card balances and delinquencies are on the rise. I could go on.

The "good" news? The stonk market is at all time highs!! There is a concept known as the 'wealth effect' - when the value of assets increases (houses, investments, etc.), people 'feel' richer, and therefore spend more money. All this money being spent is keeping growth (and inflation) elevated. However, 90%+ of the wealth created since Covid is concentrated with those aged 44 and above. 50% of that wealth resides with the baby boomers (shoutout to my boomers). This is equivalent to $40 TRILLION (with a T) in wealth created over the last 4 years for the older generations. Younger generations have both missed out on most of this growth, and continue to take on the most debt in history. So yeah, GDP grew because Baby Boomers can keep spending. Inflation remains hot because Baby Boomers can keep spending. The economy is fine, it's the vibes that must be off!