Is the US economy ready to enter into a 'vibespansion'?

With the University of Michigan Survey of Consumers revealing a reading of 78.8 for January — its highest level since July 2021 — and inflation data showing inflation is cooling towards the Federal Reserve's target rate of 2%, the vibecession may be over for many consumers.

Kyla Scanlon, author of In This Economy?: How Money and Markets Really Work, joins Yahoo Finance to discuss the next movement in consumer sentiment and take a look at trends in the broader market moving forward.

The financial content creator comments on current consumer sentiment coming off of vibecession cues:

"If you ask people their number-one economic concern, a lot of times it is things are very expensive at the grocery store, and so I think inflation and inflation going down is key. However, when we talk about inflation going down, a lot of people think that that means that prices are going to go down, but that's deflation. And so inflation is improving. We do see a big recovery. It's getting a lot closer to the Fed's target of 2%. But I do think that prices are going to remain elevated. They're not going to go back down. I think that's going to create a lot of frustration for people."

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

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JULIE HYMAN: Well, 2023 was the year of the vibe Session every day Americans weren't feeling good about the economy, even though the data wasn't necessarily that bad. But that may be changing in the new year. University of Michigan's Consumer Sentiment jumping in January, inflation cooling, again. Put simply, the vibes are off to a solid start in 2024.

Here to break it all down further is the author, educator, and the one who coined the term "vibe session," Kyla Scanlon. Now you're talking about vibe spansion, Kyla. You got another fun word to talk about what's going on. So people are feeling better?

KYLA SCANLON: Yeah. I mean, if you can look at the consumer sentiment metrics and see that people definitely are feeling better than they used to. And there's a lot of reasons why that could be happening. A lot of people are pointing to a change in media headlines. Media headlines are becoming more positive. Inflation is going away, so people might be feeling the impact of that. But, yeah, people are feeling a lot better, which is quite good for how we think about the economy.

JOSH LIPTON: And, Kyla, when you look at the data, are all people feeling better? Or truly-- or is it subset of consumers are feeling better?

KYLA SCANLON: Yeah. I mean, across the board the consumer sentiment metrics are pretty strong. You can also look at things like job satisfaction metrics and get an idea of how people are feeling about their jobs. They're feeling pretty good about their jobs as well. Of course, there's pockets of people who are not feeling as good. And that's always something to keep in mind. But across the board, we have seen a pretty strong increase in sentiment from most groups.

JULIE HYMAN: So I guess, Kyla, then the question is what that implies about the future path of the economy. If the economy was able to expand last year much better than estimated, even though people weren't feeling great, now that they're feeling better, does that mean the economic growth this year might be better than expected?

KYLA SCANLON: Well, if you look at the recent GDP print, a lot of the growth from-- you know, how we measured the economy that way was from government spending from manufacturing spending. And so the question is, can the economy keep on growing if manufacturing spending isn't increasing at the same clip? But if consumers keep on spending money, which they have been doing based on retail sales, we should still see this economic strength continue. So I do think everything is pointing in the right direction, which is good to hear. Yeah.

JOSH LIPTON: So if things are moving in a better direction, Kyla, are you surprised President Biden isn't getting more credit for that? And do you expect that to change? Do you think we're going to start seeing his approval ratings move higher here?

KYLA SCANLON: I don't know I think election year is always really tough. I think politics are really tough. You know, you look at the surveys, and nobody's super happy about either candidate. And I think that makes it difficult across the board. I do think that there is credit due for Biden and Jerome Powell on how the economy has progressed over the past few years. Like if you had told somebody in early 2023 that the economy would be where it's at currently, I don't think anybody would have believed you. So there's credit due. I'm just-- I'm not sure if it'll be delivered to those who deserve it.

JULIE HYMAN: And when you're looking at inflation as an input to sentiment here, what are you watching and how important a factor do you think that is?

KYLA SCANLON: I mean, inflation is incredibly important. If you ask people their number one economic concern, a lot of times it is things are very expensive at the grocery store. And so I think inflation and inflation going down is key. However, when we talk about inflation going down, a lot of people think that means that prices are going to go down, but that's deflation, right?

And so inflation is improving. We do see a big recovery. It's getting a lot closer to the Fed's target of 2%. But I do think that prices are going to remain elevated. They're not going to go back down. And I think that's going to create a level of frustration for people. But there, of course, is going to be happiness that prices are not increasing at the rate that they once were.

JOSH LIPTON: And, Kyla, I want to get you out of here on this. You say the word of the year is trust, Kyla. I was wondering if you could help walk us through that. What's interesting to me is we do live now in kind of a low trust society, Kyla, not much trust in government, the economy, media, right? How do you think you improve on that?

KYLA SCANLON: Yeah. I mean, I don't know if I can do that concept of justice in just a few minutes. But the whole idea is that the language that we use to describe the economy doesn't necessarily reflect the economy itself, like GDP maybe isn't the best metric to be using but it's the metric that we use. And so that kind of gets into language not accurately describing the economy, which impacts storytelling and impacts narrative.

And then if the stories that we're telling don't necessarily match to people's reality, that leads to an erosion of trust. And we live, as you said, in a very low trust society already. And so I think that building trust back up, however we end up doing that, is going to be extremely important for the economy moving forward.

JULIE HYMAN: You're right. I wish we did have more time to talk about that. But we got to go, Kyla, so we'll do it next time. Kyle Scanlon, thanks so much. Appreciate it.

KYLA SCANLON: Thank you.