These are just some of the latest results illustrating a growing partisan divide in economic optimism across the United States. The Biden administration has recently named this phenomenon the “Vibecession.” This term describes exactly the surprising opposition in the face of great economic numbers versus all the terrible feeling coming from consumers. The US economy certainly looks good on paper. Observable pandemic and shock-proofing by respondents in consumer sentiment surveys reveal a striking political bias in how we assess our perceived stability.
The GfK Consumer Confidence Barometer has been monitoring consumer confidence for more than fifty years. Most recently, it announced dramatic shifts in the outlooks of American consumers. Democrats’ optimism reached a fever pitch during the transition period. Specifically, it jumped from a score of 67 at the end of 2020 to 96 when the Biden administration entered office. This is a dramatic difference, as Republicans’ confidence crashed from 100 to 59 in that same time frame. This divergence illustrates how political affiliation can color concerns about the country’s economic state. There are sweeping perceptions of malaise that could persist even when the underlying economic metrics are objectively positive.
The “Vibecession” perfectly summarizes this experience, noting that most people are experiencing economic precarity even when data points to prosperity. The Biden administration’s acknowledgment of this sentiment reflects concerns about consumer behavior and spending, which are crucial for economic recovery.
The United Kingdom has been through a lot in the past few years. As seen after the Brexit vote and during the COVID-19 pandemic, consumer confidence dropped sharply across all age cohorts. The political and economic upheaval created by these developments has a great number of Britons reeling and despondent about their nation’s future. The Liz Truss mini-budget in 2022 was a very complicating and dangerous inflection point. It rattled consumer confidence, from seniors to Gen Z.
The UK’s older people need reassurance about future economic prosperity. They report deep insecurity about their own economic prospects. This sense of despair results in tightfisted spending patterns, which in turn pulls down the nation’s Gross Domestic Product (GDP). In spite of this overall doom and gloom, various measures are showing that worker wage increases are still outpacing inflation. Combined with the wage growth, this should spell out more spending, though many consumers are still playing it safe.
The UK is enjoying a savings revival, with a nearly double-digit savings rate. This is exemplary of a prudent approach to fiscal management during periods of unknown economic impact. Smart consumers are making choices to prioritize saving over spending. This trend could be the first indicator of a deepening pessimism about upcoming economic prospects. Overall, inflation is heading in the right direction—down, and back toward the government’s goal of 2%. Policymakers are hopeful that this favorable economic shift will increase consumer spending.
We know that the UK Government is deeply committed to driving economic growth. They introduced measures to rein in statutory price hikes permitted for regulated public services such as rail and water. Together, these measures put money back in people’s pockets and reduce the cost of living by making it easier for families to juggle their expenses. Signs of a potential mortgage price war may emerge as lenders compete to attract borrowers, which could revitalize the housing market after a period marked by Budget uncertainty.
Now the government is counting on an investment boom. Recent announcements on specific infrastructure investments—including the third runway at Heathrow airport and plans for a new trans-Pennine electric train line in Northern England—support this ambition. Together these initiatives are very well-intentioned efforts to improve connectivity and stimulate economic growth throughout a diverse set of regions.