The economic landscape in the United States has become a study in contrastsOfficial figures from the Bureau of Economic Analysis signal a robust growth trajectoryHowever, the sentiments among the American public paint a starkly different picture, characterized by an overwhelming sense of pessimism towards the economic outlook.

This duality has given rise to a new term: "Vibecession." This term encapsulates the disconnect between the positive statistical indicators and the negative feelings harbored by the populace, even as solid data fails to mitigate their apprehensions.

Recent reports suggest that after a phase of seeming prosperity, the symptoms of a Vibecession are gradually being substantiated by reality, as new data emerges.

New Data Emits Pessimistic Signals

The latest economic indicators indicate a noticeable slowing down in growth momentum.

Signs of this downturn manifested earlier this year, with April's GDP figures for the first quarter coming in significantly below expectations, delivering an unexpected shock to the economy.

A key driver of the U.S

economy, consumer spending, also fell short of predictions.

These disappointing figures suggest that following a year characterized by surprising robustness, momentum in the U.Seconomy has significantly diminished as we enter early 2024.

Since the start of this year, inflation has surged, leading to a rapid cooling of both consumer and governmental expendituresParticularly, spending on goods like automobiles and gasoline has slowed, alongside reductions in corporate inventory investments, adversely affecting overall economic growth.

Recent revisions to government data further lowered the growth rates for GDP and Personal Consumption Expenditures (PCE) in the first quarter, amplifying the prevailing pessimistic signals.

On May 30, data released by the U.S

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Department of Commerce revealed that the actual GDP growth rate for the first quarter was adjusted to 1.3%, down from an initial estimate of 1.6%, representing a considerable deceleration from the prior quarter's 3.4%, marking a new low for Q1 2023.

The revised figures for GDP growth underscore the challenges facing the U.Seconomy as it grapples with both inflationary pressures and weakened demand.

Specifically, the department highlighted a notable downward revision in consumer spending growth, which accounts for approximately 70% of the U.Seconomy, now reported to have grown by 2%, a full 0.5 percentage points lower than initially estimatedMoreover, spending on goods saw a decline of 1.9%.

Investment in non-residential fixed assets also illustrated a tepid growth of 3.3%, an adjustment that is slightly better than the first estimate but remains below the growth rate seen in the previous quarter.

At the same time, the PCE for the first quarter revealed an annualized increase of just 2%, which was revised down by 0.5 percentage points and fell short of the anticipated 2.2%.

The PCE price index, pivotal for the Federal Reserve's inflation monitoring, indicates the trajectory of monetary policy moving forward.

The downturn isn’t limited to just GDP figures

The existing home sales index witnessed a sharp drop of 7.7% in April, falling short of forecasts and marking the lowest level since April 2020 as the expected peak season cools off.

Additionally, the job market exhibits signs of cooling, with averages of initial unemployment claims reaching their highest level in eight monthsThe latest figures from the Department of Labor indicate that, for the week of May 25, initial claims totaled 219,000, slightly surpassing forecasts, with prior claims revised up from 215,000 to 216,000.

The Reality of Vibecession

The experiences of businesses and individuals reveal the pressing issues more clearly.

On May 29, the Federal Reserve released its Beige Book, detailing business conditions across 12 districts, revealing that companies are increasingly pessimistic about the economic outlook.

Many businesses express concerns regarding weakening consumer demand and the potential implications of geopolitical tensions on economic stability

This uncertainty has led to a more cautious approach in terms of investment and expansion.

Inflation has dominated discussions among U.Sbusinesses for the past three years and remains an unavoidable concern for ownersCost pressures continue to challenge various sectors, particularly manufacturing.

Earlier reports from the National Federation of Independent Business indicated in April that their small business optimism index fell by 0.9 points in March to 88.5, the lowest since December 2012. This index has now remained below the average of 98 for 27 consecutive months.

Furthermore, 25% of business owners cited inflation as their primary challenge in managing operations, contributing to increases in their incurred costs.

However, when businesses attempt to pass these rising costs onto consumers through price hikes, they face significant resistance

Sensitivity to price increases has led to declines in sales.

Faced with rising prices, and struggling with sluggish demand and high inventory levels, some companies are resorting to price cuts in a bid to entice consumers.

Jeffrey Roach, chief economist at LPL Financial, one of America's largest independent advisory brokerage firms, notes that consumers are finding it difficult to manage sustained high prices, exerting pressure on corporate profits.

As prices continue to rise, the impact of inflation is also being felt acutely by consumers.

The high inflation rates erode purchasing power, forcing consumers to manage their budgets more cautiously and even tap into savings

An increasing number of consumers are showing resistance towards further price hikes.

The consumer confidence index in the U.Shas seen a decline for three consecutive months, though a slight rise of 4.5 points was observed in May, bringing it to 102, surpassing market expectationsNonetheless, a growing number of consumers expect the economy to enter a recession within the next year.

The University of Michigan has been closely monitoring consumer confidence indices.

Currently, savings levels among low-income populations are markedly lower than pre-pandemic averages, with the year-on-year growth rate of average hourly earnings in March being the slowest since June 2021.

Wage increases have failed to keep pace with inflation, indicating a substantial decline in purchasing power for the working class

A survey by American magazines found that inflation-adjusted wages have not improved since the mid-1980s.

Polls suggest that in the view of many Americans, the current state of the economy is significantly worse than it appears.

A recent poll conducted by the University of Michigan's Ross School of Business revealed that 71% of respondents perceive the economy as poor.

A similar study by Harris Polls indicated that nearly 60% (56%) of Americans believe the country is currently in a recession, and nearly half (49%) anticipate a decline in the stock market

Furthermore, 55% think that conditions will only worsen.

This sentiment has been encapsulated by economists using the term "Vibecession," initially popularized by noted economic commentator Kyra Skandran, to delineate the pervasive pessimism that prevails despite reasonably performing economic statistics.

Diminishing Expectations for Rate Cuts

The Federal Reserve's latest Beige Book emphasizes that despite ongoing economic growth, an increase in uncertainties and risk concerns is leading to a dim outlook.

Since late 2022, the Fed's aggressive rate hikes have influenced several sectors of the economy, precipitating a chain reaction that complicates the overall landscape.

We are now witnessing the prolonged reality of high-interest environments.

Since July of last year, the Federal Reserve has maintained a policy interest rate between 5.25% and 5.50%, a peak not experienced in over 23 years.

While the market anticipated rate cuts to begin this year, expectations have faced serial delays.

Initially, the market projected cuts in March, but that was pushed back to June, then September, and now, expectations for rate reductions in 2023 have been further diminished.

The Fed's meeting minutes from April 30 to May 1 reflected a "hawkish" stance, indicating that data displayed persistent inflation and overall economic resilience, leading to significant shifts in policy expectations.

The minutes suggested that decision-makers are not in a hurry to cut rates, with some policymakers advocating for further restrictive measures if necessary.

With economic data exerting pressure alongside policy expectations, the market continues to dial down its bets on rate cuts this year; anticipating that the Fed will maintain the current benchmark rate in its upcoming meetings.

Swaps indicate that the market does not expect rate cuts to commence until December with significantly reduced expectations for further reductions in 2024.

Despite the Fed officials nearly ruling out any further rate hikes, they clarified that any decisions on loosening monetary policy will await consistent positive inflation data in the coming months.

Currently, the Fed faces a conundrum: the interest rates seem "both too high and too low." For many American households and small businesses, the slow pace of rate cuts hasn't eased their burdens

However, for larger corporations able to leverage bonds and those benefiting from stock market gains, Fed policy adjustments seem less pressing.

Fed officials opine that the current federal funds rate is sufficiently restrictive to dampen economic activity and reduce inflation, although high rates have projected significant adverse spillovers across the global economy.

Risks of Fiscal Deficit

In the aftermath of the COVID-19 pandemic, the global economic recovery has faced numerous hurdles: disruptions to supply chains, energy, and food crises spurred by conflicts, and soaring inflation have compelled synchronized tightening of monetary policies worldwide.

By the end of 2022, global economic growth recovered to 2.3%, and according to the International Monetary Fund’s (IMF) latest predictions, growth is expected to stabilize at 3.2% in the coming years, with median inflation levels anticipated to decline from 2.8% at the end of 2024 to 2.4% by the end of 2025.

However, this IMF report was released before a series of disappointing U.S

economic indicators in April, predicting a 2.7% year-on-year growth rate for the U.Seconomy in 2023—0.6 percentage points higher than January's forecast and 1.2 points above the projection from October of last yearGrowth is forecasted to slightly decelerate to 1.9% in 2025.

The IMF noted that the recent strong performance of the U.Seconomy is underpinned by steady productivity and job growth, however, the economy remains in an overheated phase, revealing strong demand conditionsTherefore, a cautious and gradual easing of policy remains paramountThe current fiscal policy stance contrasts sharply with long-term sustainability goals, posing risks to the inflation reduction process in the short term, while potentially leading to fiscal and financial stability concerns globally over the long term.

The actions of the U.S

government and the Federal Reserve appear at odds, following separate paths that could undermine one another.

Currently, the ratio of government debt to the economic scale remains higher than in previous years; elevated deficits may influence inflation via numerous channels.

The IMF's latest report projects that the U.Sfiscal deficit will reach 7.1% of GDP next year—as opposed to the 2% average seen across other developed economies.

Pierre-Olivier Gourinchas, IMF's chief economist, states that the fiscal condition of the United States is "particularly concerning," complicating the Fed's response to inflation