Consumer confidence is up, and inflation is down. But will the economy improve enough by November to buoy Biden’s flagging reelection prospects?

A customer visits a supermarket in Burlingame, California, on November 14, 2023. (Li Jianguo / Xinhua via Getty Images)

Though I’m certainly not the first to make this observation, it looks like the “vibecession” is over. The term was coined in June 2022 by multimedia economic analyst Kyla Scanlon (drawing on John Maynard Keynes but also the poetry of Charles Bukowski), who defined it as “a disconnect between consumer sentiment and economic data. So basically, the economy is doing fine, but people are absolutely not feeling fine.” By recent measures, people are starting to feel somewhat finer, if not bounce-off-the-walls fine.

The Conference Board’s consumer confidence index rose 6.8 points in January to its highest level since December 2021. The index is the summary of a monthly survey the organization has conducted since 1967 that asks people questions about the state of the economy, the job market, and their personal finances, both in the present and their expectations for the future. Separate indexes for the present and expectations questions are computed, and then averaged into a composite. The history is graphed below.

January’s rise in the composite was led by its “present conditions” component, up 14.1 points to the highest level since March 2020. Driving the rise were improving evaluations of the job market, as the gap between those reporting jobs “plentiful” and those reporting them “hard to get” expanded 8.4 points to 35.7 in favor of plentiful — very high by historical standards (higher than 94% of all the months in its fifty-seven-year history). Expectations, alas, are more muted.

Gallup agrees on the improvement, though not on its degree. The present component of their economic confidence index rose to its highest level since November 2021 in January, but it’s still negative on balance. (It’s computed as the difference between the share of respondents calling the economy excellent or good and the share calling it poor. Just 5% of respondents in the January survey called it “excellent,” and 22% “good.” Far more, 45%, called it poor, for a net of -18%.) The expectations side, while also net negative, is at its least negative level since September 2021. There’s no graph of these because there are often long stretches between surveys and such a graph would be ugly.

And another: the University of Michigan’s consumer sentiment measure (graph below) was up 9.1 from December on its preliminary January reading, reaching its highest level since July 2021. It was also led by evaluations of the present, though expectations were somewhat loftier than the Conference Board’s counterpart. Sentiment had really been plumbing the depths: in June 2022, the month Scanlon coined the term, the index hit 50.0, its all-time low in over seven decades of history — below the depths of the Great Recession. Not coincidentally, it was also the month of peak inflation.

The sentiment index’s full-year 2023 average was 8 points below the long-term recession average. January’s improved reading was nonetheless still almost 10 points below the average of all business cycle expansions since 1952.

Inflation Down

Much of this improvement in outlook is the result of the decline in inflation, from 8.9% in June 2022 to 3.3% in December 2023, a fall of almost two-thirds. We hadn’t seen 8.9% in forty-two years. December’s 3.3% is above the 1990–2019 average of 2.5%, but not profoundly so.

Along with the decline in actual inflation has come a decline in expected inflation. I’ve long thought that instruments that measure “expectations” are mostly about the present and recent past and have little or no prognostic content. (As the graph below shows, expectations for price increases over the next twelve months generally track the experience of the previous twelve.) Instead, expectations can be read as a measure of a subjective state — in this case, how established inflation feels as a part of life, and what the current norm is.

By this measure, inflation’s psychological grasp looks to be slipping. As the graph shows, expectations for the next year have come down along with actual inflation, from over 5% in mid-2022 to 2.9% in January.

That matters a lot — people hate inflation! Liberals and leftists tend to dismiss inflation as a concern of anal-retentive reactionaries, but that badly misreads popular opinion. I made this argument at some length in my long Jacobin article on inflation, but here’s another piece of evidence to add to that: Scanlon cites a Morning Consult poll that found 63% of consumers prefer prices going down to their income going up. Economists natter on about “real” (inflation-adjusted) income, but they may not be giving enough weight to the price part.

Partisan Coda

Speaking of the Michigan sentiment numbers, the improvement in outlook over the last couple of months crosses partisan lines, but the gap between Democrats and Republicans widened. Partisan gaps have long been visible in the survey, but they were much less dramatic than they’ve been since January 21, 2017. During the Obama years, Democrats’ consumer sentiment ratings were about 18 points higher than Republicans’. During the Trump years, the gap more than doubled to 39 points, though it switched parties to favor Republicans. For first three of the Biden years, the parties flipped again, as Democrats’ evaluations exceeded Republicans’ by 35 points, even though nothing had changed by conventional economic measures. Independents, not surprisingly, split these differences.

Between November 2023 and January 2024, both parties saw strong increases in their evaluations of the economy, but Democrats, up 17 points, were more enthusiastic than Republicans, up just 15. So the gap widened to 44 points.

Much of the lift to the overall sentiment measure for Republicans — over three-quarters of it — came from expectations, not evaluations of the present; perhaps they’re hopeful about November’s election results.

Otherwise, the end of the vibecession might be good news for the hapless warmonger Joe Biden, who needs some.

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