The Vibecession Hasn’t Gone Away

And the most comforting explanation of it is wrong

The “vibecession” (originally coined by Kyla Scanlon) means “the vibes of a recession, but maybe not the economic reality of one (yet).” When the term first entered the discourse (in - and I double-checked this number multiple times - 2022), many people were expecting an imminent recession as the FOMC hiked interest rates to slow down inflation. That recession never happened - the FOMC managed to calm down inflation (though not all the way back to their 2% target) without crashing the economy.

However, recent economic data has been fairly disappointing. Most notably, the most recent BLS employment situation report showed that 92,000 fewer people were employed in February 2026 than January 2026. I saw someone quip that the “vibecession” was over, and the real recession had finally arrived.

I’m not so sure.

I agree that there’s been some labor market weakening (and likely to be more in the future due to oil shocks from the attack on Iran). But at the same time we’re in an economy where most aggregates look good - unemployment is still just 4.4%, total inflation in the last year was only 2.4%. Using the Carter-era “misery index” of unemployment+inflation, right now would be a relatively good (though not necessarily great) economy.

The Vibes are still bad - even as the economy weakens

A second reason I don’t think the vibecession is over is that the vibes have gotten worse. In fact, the vibes have gotten worse faster than any observable economic weakening.

There are a couple of potential ways to measure “vibes”. For the purposes of this post, I’m looking at the index of consumer sentiment, published by the University of Michigan.

The index (methodology here) is based on answers to five questions about the economy:

• “We are interested in how people are getting along financially these days. Would you say that you (and your family living there) are better off or worse off financially than you were a year ago?”
  
  

• “Now looking ahead--do you think that a year from now you (and your family living there) will be better off financially, or worse off, or just about the same as now?”
  
  

• “Now turning to business conditions in the country as a whole--do you think that during the next twelve months we’ll have good times financially, or bad times, or what?”
  
  

• “Looking ahead, which would you say is more likely--that in the country as a whole we’ll have continuous good times during the next five years or so, or that we will have periods of widespread unemployment or depression, or what?”
  
  

• “About the big things people buy for their homes--such as furniture, a refrigerator, stove, television, and things like that. Generally speaking, do you think now is a good or bad time for people to buy major household items?”

Note that each of these questions is binary - the intensity does not matter, just whether people say “Yes, or no”. The answers are then averaged, and indexed such that they would be 100 in 1966. If the number is above 100, survey respondents are giving more positive answers than they did in 1966, if it’s below they are giving more negative responses than 1966.

We can see how much “the vibes are off” by running a regression on the pre-Covid data, and seeing how well it predicts the post-Covid data. Twitter user @quantian1 looked into this in a 2023 thread.

(This thread has the distinction of being one of the only twitter threads I know of to inspire an academic paper. Bolhuis et. al The Cost of Money is Part of the Cost of Living replicated and extended his work, showing that a 1983 change in how inflation was calculated altered the historical relationship between inflation and consumer sentiment. As such, pre-1983 inflation data (which is to say, most of the years that experienced any high inflation at all) is an unreliable guide for predicting contemporary consumer sentiment).

Quantian1 used a bunch of different variables in his analysis - I can never remember exactly which without referring to his the thread. Instead, I’ve been tracking the same relationship, but only using three variables: unemployment, inflation and interest rates (and recently a binary “pre-1983” variable to account for the issue raised in Bolhuis et al).

These variables are enough to replicate the basic finding. Before the pandemic, actual and predicted sentiment moved in parallel. But as unemployment and inflation normalized, the predicted sentiment diverged.

By January 2024, the economic indicators were fairly normal - unemployment was low at 3.7% and inflation was high but a more manageable 3.1% (compared to the 8% inflation in previous years). Interest rates were up substantially, but even given interest rates the predicted sentiment was back up to 100. However, actual sentiment was still substantially lower at 79.

Predicted sentiment has been fairly stable since 2024 (though it has slightly declined). But actual sentiment has remained low. Consumer sentiment in March was measured at 55.5.

55.5 is an extraordinarily low number for consumer sentiment. Prior to the pandemic, there were only three months that were lower: April and May 1980 (the Volcker shock) and November 2008 (during the global financial crisis). Right now the difference between predicted and observed sentiment (the “residual” in statistics-speak) is around 40 points - almost twice the size it was when Scanlon first coined vibecession (the month with the highest residual is of course April 2025 - the month where Trump announced the “Liberation Day” tariffs).

The vibecession isn’t over - the economy hasn’t collapsed, nor have the vibes improved. If anything, the difference between the hard and soft economic data has just gotten larger.

The vibecession isn’t driven by the worst off

When discussing economic data and the vibecession, it’s fairly common to see someone say something like “well, of course the vibes are off - it’s actually really hard to get by if you are poor in America”. Nick French wrote a good representation of this perspective in In These Times.

Look beyond topline metrics like GDP growth or unemployment, though, and you’ll find a more complicated story. Many Americans report struggling financially, in part because of the discontinuation of many early pandemic welfare policies. So even as the U.S. economy has reaped continued benefits from those programs…many people are understandably resentful at feeling like the ladder’s been kicked out from under them.

But I think it is hard to make the case that this has driven the recent divergence in the last few years. Yes, it’s hard to get by if you are poor - but that was the case in 2016 as much as 2026. The vibecession has to explain something that has changed in the last few years.

Additionally, this explanation ignores something important - the population that sees the biggest difference between predicted and actual sentiment is the upper- and middle-classes; not the poor.

The University of Michigan breaks out consumer sentiment in a couple of ways, including by household income. Households are divided into three equa- sized groups (terciles) and measured separately.

As you might expect, the low income households tend to have a lower sentiment than high income households. Prior to 2020, high income households had an average sentiment of 95, compared to middle-income households at 88 and low income households of 78. The difference between sentiment in high and low income households was around 17 points.

All three groups diverged from their expected sentiment soon after the pandemic, and the broad patterns are fairly similar.

But when we focus on the residuals for each group we can see that, in general, the bottom third has the residual closest to zero.

After the pandemic, the gap between the consumer sentiment for upper third and lower third income households actually tightened. Instead of a 17 point gap between the richest and the poorest households, the gap is now down to 9 points.

It’s just not the case that the vibecession is driven by the lower class being frustrated about living paycheck to paycheck or the withdrawal of pandemic income supports. The vibecession is broadly experienced by all income groups with the lower income households experiencing it, if anything, the least.

Full employment makes people uncomfortable

This actually makes sense.

One of the most interesting phenomena in the economic data during the pandemic is how wage inequality decreased. Autor, Dube, and McGrew showed that during the pandemic real wages for low income workers increased dramatically (and unlike 50th or 90th percentile workers, stayed up even during the period of heightened inflation).

The pandemic era income supports effectively juiced the labor market - people had money to spend and, among other things, spent it hiring labor. The more people who have jobs, the more competitive the labor market is. Firms no longer can assume that someone will apply to an open position at any given wage. They have to offer competitive wages and beat their competition to hire workers.

I think that this is an important component in understanding the vibecession. Part of what might be happening is just that - after decades of low inflation - Americans were especially frustrated by the sudden rapid increase. Another is that the way the media reports the economy shifted. Work by Ben Harris and Aaron Sojourner suggests that not only were households more negative than expected in the last few years, but media reporting was also similarly odd.

But I think that understanding that the vibecession was strongest amongst middle- and upper-income households is an important part of the puzzle. One way to interpret the “vibecession” is that it is, at least in part, due to the entire American consumer class briefly going Kalecki. Michel Kalecki was a Polish economist who argued that full employment would actually be opposed by capitalists despite the positive effects on profits and economic growth.

It is true that profits would be higher under a regime of full employment than they are on average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But “discipline in the factories” and “political stability” are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the “normal” capitalist system.

But while Kalecki saw this as a specific revolt of capital owners, in practice it seems like it might be much broader. I think part of what happened is that many middle- and upper-income households were used to being able to afford low-wage labor on demand - for childcare, for food service, for home health care. Middle- and upper-income households found this frustrating and assumed it was part of the broad story throughout the economy; not realizing that much of this frustration was driven by low-wage workers finally earning a little more bargaining power. As Jerusalem Demsas recently noted in The Argument, much of public debate is shaped by people assuming that their experiences are universal.

If Kalecki was right that full employment changes social relations in ways that make elites uncomfortable, the past few years suggest that the discomfort may extend much further. When workers gain bargaining power, the economy doesn’t just change for firms. It changes for everyone who is used to being a customer.