There's a great divide in the U.S., and it's not partisan. It's the big gap between how people see their finances (pretty good) and their view of the overall economy (terrible), and it's persisted for years since the pandemic.
Why it matters: The schism certainly has political implications — it's hard to get re-elected if voters think the economy is a junkyard — and it points to troubling conclusions about Americans' awareness of economic reality.
- But so far, the doomsday perception of the U.S. economy hasn't slowed the economy down very much — as many feared when Kyla Scanlon first coined the term "vibecession" back in 2022.
Zoom in: The divergence showed up in the most recent Federal Reserve survey on economic well-being.
- For the poll, respondents are asked to choose from four options when it comes to how they're doing.
- The top two choices were "living comfortably" and "doing OK." 72% of Americans landed in those categories.
- Respondents are also asked about the financial well-being of the national economy — the top two choices, "excellent" and "good," were chosen by only 22% of Americans.
Zoom out: The gap between people's perceptions of their financial well-being and that of the national economy has nearly doubled since 2019.
Friction point: In the past, negative consumer sentiment — the bad vibes — typically lined up with economic slowdowns.
- Worried people buy less stuff. They don't take vacations. Or buy boats. Or spend thousands to see Taylor Swift in concert.
- But what's odd now is that the negative consumer psychology doesn't line up with the generally positive economic data, and it certainly isn't translating to behavior — people are still spending.
The big picture: This divide is showing up in plenty of surveys.
- The University of Michigan Consumer Sentiment Index for May came in lower than 84% of readings since 1978, David Kelly, chief global strategist for J.P. Morgan Asset Management, writes in a recent note.
- Just 22% of respondents to a May Gallup poll said they were satisfied with the way things were going in the U.S., compared to 77% dissatisfied. That's a wider gap than three-quarters of the time since they started asking the question in the 1970s.
- A Harris poll last month showed that 56% of Americans think we're in a recession.
Yes, but: The Fed survey found that measures of Americans' financial wellness are lower for certain groups, including parents (64% say they're OK), those with a high school degree and no college (63%), and those under 45 years old (66%).
- Still, those percentages are far higher than the ratings for the national economy.
The gloom is a vulnerability, says Matt Colyar, an economist at Moody's.
- "It suggests a real brittleness," he says. If something does go wrong in the economy, things could snap.
- For example, if the next jobs report shows the economy shed jobs — and millions of people get a push notification about the worrying news, that could trigger all this built-up economic pessimism.
- Folks could start saying "OK, we're not building that addition; we're not going on vacation," and then the real economy does start to slow, says Colyar.
What to watch: Consumer spending is key here. A report out last week found that it's slowing down. If it turns down more sharply, that would indicate that reality caught up with vibes.
