What Caused The Great Vibecession?
Hello and welcome back to the Recruitonomics Newsletter! This week, we’re looking at the surprising gap between consumer sentiment and the true performance of the economy. Consumers are feeling much more pessimistic than the economic fundamentals would suggest, but why??
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This Week on Recruitonomics:?
What Really Caused the Vibecession??
Economic data has been coming in strong for some time now: Labor market fundamentals are enviable, inflation is cooling and GDP growth has been solid. If you ask a consumer how they feel about the economy, they should report positive sentiment, right? Not exactly. Consumers are feeling incredibly pessimistic about the economic outlook, according to two key measures of consumer sentiment, the Survey of Consumers from the University of Michigan and the Consumer Confidence Survey from the Conference Board . This mismatch between vibes and reality has been dubbed the “vibecession.” The danger of these bad vibes is that it might cause consumers to tighten their purse strings, leading to a recession (this gloomy outcome did not come to fruition in 2023, which saw consumers continue to spend strongly, aiding strong growth). So what has caused this “vibecession,” this denial of economic truth? It’s tempting to immediately blame inflation: Despite its cooling trend, prices are still far higher than they were pre-pandemic. But considering a simple model that incorporates the inflation rate, unemployment rate, and nominal wage growth and historically tracks with consumer sentiment, both sentiment measures are still far lower than expected. Adjusting the model to include the three-year inflation rate reduces, but does not totally eliminate, the gap between expected and actual sentiment. So, while higher price levels can partially explain the low vibes, they are not the complete reason why consumers feel so low. What else can explain the vibecession? Sam Kuhn and Julius Probst, PhD explore.?
Read the full article here.
What does this mean for recruiters??
For recruiters, this means that job seekers might be coming into the recruitment process more discouraged than they necessarily should be. While demand is high, job seekers might be searching around more, believing their prospects are less than reality would suggest.?
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Recently on Recruitonomics:
The U.S. labor market started off the new year with a bang! In January, the labor market once again looked very strong, adding an impressive 353,000 net new jobs in January, toppling market expectations. Unemployment remains at the low level of 3.7%, while measures of labor force supply flattened. This is a surprisingly hot start to the year but January’s data is often marred by statistical quirks. For example, in January 2023 the initial estimate for nonfarm payrolls was a whopping 517,000, which eventually was revised down to 482,000. However, this will not bolster confidence in the Federal Reserve to soon start rate cuts. This labor market might still be a bit too heated to inspire confidence in a slowing economy that will not prompt inflation to resurge.?
Read the full article here.
A few years ago, the United Kingdom split from the European Union, forever altering the flow of goods in and out of the country. Brexit has created several barriers to goods trading in the years since it’s been implemented. In place of material goods, the people of the U.K. have turned to services exports. What exactly are services exports? As advanced economies become richer, they often spend more on services – think healthcare, education, leisure and hospitality, etc. Workers then export those services to other countries, which is becoming increasingly common and a larger part of international trade. Some growing services include tourism, financial and business services, law consultations, and more. The United Kingdom has become a leader in service exports in the past decade. The country exports around ￡470 billion worth of services yearly, over half of their total exports. In fact, the United Kingdom has a much higher share of services exports than any other large, advanced economy. In this post-Brexit world, the U.K. needs to focus on remaining a sizable services exporter, especially with the growing relevance of services within advanced economies.?
Read the full article here.
What Recruitonomics is Reading:
Errors within economic forecasts are a fact of life: No one, not even the most educated, thoughtful team of researchers, has a crystal ball. While these forecasts are always prone to small mistakes, they have been absolutely off since the pandemic. Very few expected the surge in inflation, even fewer forecasted a soft landing like we’ve seen. What do these messy forecasts tell us about our understanding of the pandemic during this complex period of time? David Wilcox of the Peterson Institute for International Economics explores, and suggests some guidelines for forecasting in the future.?
?More Data & Insights:
Thank you for reading! Stay tuned for next week's Recruitonomics Newsletter and check out Recruitonomics.com for more data-driven insights.