Is the “vibecession” ending? Consumer sentiment and inflation improve

The gap between how the economy performs and how people feel about it—coined “vibecession” by Kyla Scanlon—appears to be shrinking. Recent data show consumer confidence and sentiment climbing while inflation eases and real GDP expands [1].

Key takeaways

• The Conference Board’s consumer confidence index rose 6.8 points in January, its highest level since December 2021 [1].
• Gallup’s present‑component confidence hit its highest since November 2021, though it remains net negative [1].
• University of Michigan sentiment rose 9.1 points in January, reaching its highest since July 2021 [1].
• Inflation fell from 8.9% in June 2022 to 3.3% in December 2023, and inflation expectations dropped to 2.9% in January [1].
• Federal Reserve Chair Jerome Powell noted headline inflation is moving down, which should reinforce public belief that inflation is receding [2].

Rising confidence and easing price pressures

The composite consumer confidence score from the Conference Board climbed 6.8 points in January, driven largely by a 14.1‑point jump in the “present conditions” component—the strongest since March 2020. Respondents reported a markedly better view of the job market, with the gap between “jobs plentiful” and “jobs hard to get” expanding to 35.7 points, a level higher than 94 % of the index’s 57‑year history [1]. Gallup’s economic confidence index also rose, reaching its highest present‑component level since November 2021, though the net balance remained negative (‑18 %). Meanwhile, the University of Michigan’s consumer sentiment index rose 9.1 points from December, its best reading since July 2021, still lagging about ten points behind the long‑run business‑cycle average [1].

These improvements coincide with a sharp decline in inflation. The headline CPI rate fell from a peak of 8.9 % in June 2022 to 3.3 % in December 2023, a reduction of nearly two‑thirds. Expected inflation for the next twelve months mirrored this trend, slipping from over 5 % in mid‑2022 to 2.9 % in January [1]. Powell highlighted this trajectory, saying that lower headline inflation should strengthen the public’s belief that price pressures are receding, which in turn could help keep inflation on a downward path [2].

Economic data reinforce a softer outlook

Real GDP growth reported for the latest quarter was a robust 2.4 % annualized, underscoring the economy’s resilience despite lingering concerns about a recession [2]. Real wages also rose, with a 6 % increase noted for most American workers, a gain that brings earnings close to pre‑pandemic levels for roughly 80 % of the workforce [2]. These wage gains, together with moderate growth and a cooling inflation environment, suggest that the “vibe” of the economy is improving.