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Vibecession and why President Joe Biden gets no love for a bouncy US economy

WASHINGTON – Meet Kyla Scanlon, a star economic influencer on TikTok, with a flock of over 168,000 followers and over 2.5 million likes.

Around this time in 2022, she grabbed the headlines when she coined a catchy word “vibecession” to describe the complicated United States economy that had been shrinking for two consecutive quarters.

Technically, that would be a recession. But Ms Scanlon did not want to use that term for the economy that had curiously preserved some healthy aspects even after being tossed around by the pandemic, the Ukraine war and supply chain tangles. 

The official labeller of recessions in the US is the National Bureau of Economic Research which calls one only when there is “a notable drop in economic activity that lasts longer than a few months and is spread throughout the economy”.

It did not diagnose a recession in 2022 because other indicators remained positive. For instance, foreign business investment stayed strong, and the economy was creating jobs, not shedding them.

However, opinion surveys at the time showed that Americans certainly felt the pain from soaring inflation and an aggressive round of interest rate hikes. Households bore the burden of heavier mortgage payments, and every dollar they earned diminished in real value.

Ms Scanlon, a 25-year-old former options trader who says she wants to explain the economy in a “fun” way, called the phenomenon vibecession on her social media channels to capture the gap between good data and bad vibes, between how people are feeling and how they should be feeling.

The term seeped into mainstream media.

One year on, as the economy visibly strengthened, many pundits declared the end of that vibecession.

The figures are encouraging. The US economy has seen a good first half in 2023. 

Jobs are plentiful and underpin brisk consumer spending which is the most important force in the US economy. Spending accounts for two-thirds of the gross domestic product (GDP).

Real GDP, which is adjusted for inflation, increased at an annual rate of 2.1 per cent in the second quarter of 2023, after a 2 per cent growth in the first quarter. Some projections see an even stronger third quarter.

Although the dark cloud on the horizon is inflation, increasingly, economists on the eternal vigil are speaking of a “soft landing”. In this longed-for outcome, inflation cools while the economy still grows.

In a briefing this week, DBS Bank economists said the US was propping up the world economy, accounting for nearly 30 per cent of global GDP growth in 2023.

However, Americans remain unconvinced – and US President Joe Biden is getting no love.

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A CNN poll released on Sept 7 said more than half of those polled believe Mr Biden’s policies are making the economy worse. 

Media company RealClearPolitics’ (RCP’s) poll of polls, which offers an average of many opinion surveys, shows that only 38.1 per cent of Americans approve of Mr Biden’s handling of the economy. His overall rating across many different issues is better, but still low, at 42 per cent.

It is not the kind of thing that a president hoping to be re-elected wishes to go up against. In September, the Biden campaign launched a US$25 million (S$34 million) drive in a handful of states – like Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin – where the 2024 election will be keenly contested.

The aim is to defend “Bidenomics” – a set of economic policies meant to directly aid everyday Americans rather than “trickle down” benefits from the wealthy. 

Three big pieces of legislation were enacted to accomplish this – the infrastructure law that increased road and bridge building; the Chips and Science Act, which nurtures the domestic semiconductor industry; and the somewhat misleadingly named Inflation Reduction Act, which actually funds clean energy projects.

Indeed the trio, along with the careful rate-setting by the Federal Reserve, may have been what kept the widely expected full-fledged recession at bay. 

Effects can be seen on the ground. New investment projects worth a half trillion dollars have been announced since last November. Inflation, which soared to 9 per cent in 2021, now hovers around 3 per cent. Unemployment, which was around 6 per cent when Mr Biden took office, now stands at under 4 per cent. 

Economists spy a virtuous circle in motion – wages have risen, which means workers have money to spend which, in turn, helps businesses to expand and hire more workers, which results in better pay and more money for workers to spend. 

Yet people are not feeling the bounce. Many still say they are struggling to cope.

Mr E.J. Antoni, an economics analyst at the Heritage Foundation, a right-leaning think-tank, channelled these sentiments when he spoke about a “radical disconnect between Washington’s ruling elites and working-class folks”.

“The Bidenomics agenda caused inflation, which means prices everywhere rose, and that caused many middle-class households to change their purchasing habits to stretch the family budget. Instead of buying a more expensive cut like fillet, the family may opt for ground beef, or even a less expensive meat altogether, like chicken.

“But more people choosing relatively less expensive meat increases the demand for that meat, which further drives up the price. Thus, things that were disproportionately bought by lower-income consumers have risen in price not only because of inflation, but because of this substitution effect.”

To tame the beast of inflation and bring it down to the acceptable 2 per cent, the Fed has raised interest rates by 525 basic points since March 2022 to a 5.25-5.5 per cent target range. It was one of the steepest hiking cycles in four decades.

Mr Antoni dissected the impact. “Consider that the monthly mortgage payment on a median priced home was under US$1,000 when Biden took office, but has now doubled to over US$2,000. That’s an extra US$12,000 a year for the same house.”

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He finds the clean energy programme problematic too, saying the subsidies for green energy products, like electric vehicles, were handouts to the wealthy since ordinary folk cannot cough up US$60,000 for an electric vehicle.

Ms Scanlon, the TikTok influencer, says that the economy is better than it has been, but people continue to feel bad because the recovery has been uneven.

Data and vibes look set to meet in 2024.

The Conference Board, a think-tank that forecasts economic outlook, says that it expects the growth seen in many parts of the economy to gradually buckle under mounting headwinds later in 2023, leading to a very short and shallow recession in early 2024. 

It also predicts a recovery in the second half of 2024 to a stable pre-pandemic pattern.

But will fickle feelings follow data quickly enough to matter to Mr Biden on Nov 5, 2024, when Americans line up to vote?

Love at the time of voting may still be in short supply.

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