The Vibe Recession: When the Mood Doesn’t Match the Data

There’s a weird disconnect happening in the economic data right now that’s hard to ignore. On one side, all the soft data, consumer surveys, business outlooks, sentiment indicators, feels recessionary. People are gloomy. Business owners are cautious. Expectations are low. On the other hand, the hard data like jobs, spending, production, freight just isn’t confirming that story yet. The economy is still moving. We’re basically living through a vibe recession where the general feeling is that everything sucks, but if you look at how people are actually behaving, not much has changed. They’re still spending, still working, still moving around. It’s a strange in-between place that has left a lot of people, including policymakers, flying blind.

Start with the soft stuff. The Conference Board's Consumer Confidence Index fell by 7.2 points in March to 92.9, marking the lowest level since January 2021. The Expectations Index, which reflects consumers' short-term outlook, dropped to 65.2, the lowest in 12 years and well below the threshold of 80 that usually signals a recession ahead. Similarly, the University of Michigan's Consumer Sentiment Index declined to 57.9 in March, the lowest since November 2022, indicating growing concerns among consumers about inflation, personal finances, and the labor market. People are frustrated with prices, wages that don’t stretch as far, and a political backdrop that’s messy and uncertain. Business sentiment isn’t much better. The ISM Manufacturing PMI registered 50.3% in February, indicating modest expansion, but the New Orders Index remained in contraction territory at 49.2%. The Services PMI was slightly better at 53.5%, suggesting continued growth in the services sector. However, regional Federal Reserve surveys have shown weakness, with indices from New York, Philadelphia, and Dallas reflecting sluggish or contracting activity. Small business optimism, as measured by the NFIB, remains at levels typically seen during recessions. These survey-based metrics are driven by expectations, and prolonged pessimism can eventually influence actual economic behavior.

Contrastingly, the hard data tells a different story. Total nonfarm employment increased by 151,000 jobs in February, with the unemployment rate holding steady at 4.1%. While this falls short of some analysts' expectations, it still signifies a stable labor market. Initial jobless claims remain low, and wage growth, though moderating, continues. This doesn't depict a labor market in distress. Consumer spending shows resilience. Retail sales rose 0.2% in February, following a revised 1.2% decline in January. While not robust, this indicates that consumers are still hanging in there. Real PCE data also reflects steady services spending, which makes up the majority of household spending. Industrial production increased by 0.7% in February, surpassing expectations. Manufacturing output rose by 0.9%, with durable goods production, particularly motor vehicles and parts, leading the gains. This suggests that production is holding up despite broader concerns. The housing market, which faced challenges earlier due to rising mortgage rates, is showing signs of life. Housing starts increased to a seasonally adjusted annual rate of 1.5 million units in February, an 11.2% rise from January. Building permits, however, declined slightly by 1.2% to 1.46 million units. Mortgage applications have also seen an uptick, reflecting renewed interest from potential homebuyers despite higher rates. Even transportation, which tends to lead the cycle, is showing resilience. Intermodal rail volumes have shown modest increases, particularly in autos and consumer goods. Trucking spot rates, after significant declines, have stabilized, indicating steady demand in freight movement.

We’ve seen this kind of divergence before. Back in late 2015 and early 2016, a bunch of soft data started flashing warning signs. Manufacturing was weak, confidence fell, and credit spreads widened out. It looked like a recession might be coming. But the labor market held up, consumers kept spending, and once the Fed stepped back from rate hikes, things stabilized. Another more recent example was 2022. Inflation was exploding, consumer sentiment collapsed to GFC-era lows, and yet the economy kept moving. People still spent money, employers still hired, and the data never truly broke. The reason? Massive fiscal stimulus. Coming out of COVID, households were sitting on piles of cash from direct payments, enhanced benefits, and stimulus programs. That gave them a buffer to absorb the shock of higher inflation and rate hikes. On top of that, the labor market was incredibly strong, which gave people confidence to keep spending even when prices were rising. It felt like a recession, but the reality on the ground was different.

But this time could be different. That COVID-era tailwind is gone. There’s no more fiscal firehose. If anything, fiscal policy is now a drag. The federal government isn’t pushing money into the system anymore. In fact, Trump and his team are already talking about balancing the budget more aggressively. That puts pressure on households, especially in the middle of the income distribution, where wage growth is slowing and job openings are starting to roll over in sectors like retail, logistics, and manufacturing. You can feel the shift. Credit card balances are rising. Delinquencies are ticking up. The savings cushion is mostly gone. So even if this looks like 2022 on the surface with bad vibes but good data, the underlying setup is less supportive. The economy feels more vulnerable.

So what happens next? Hard to say, and anyone pretending to know is bluffing. But it feels like we’re in a holding pattern until the second half of the year, when we’ll start to get more clarity. My loosely held opinion is that some of the softness we’re seeing in the surveys is going to start bleeding into the hard data. You can’t have confidence and expectations this low for this long without eventually seeing a shift in behavior. The economy is 70 percent consumer spending, and if people start pulling back even just a little it’ll show up. Not in a dramatic crash, but in a slow, grinding deceleration. Spending starts to slow, companies notice the pullback and begin trimming hiring plans and holding off on new capex, which then feeds back into weaker income growth and job security. That puts even more pressure on consumer confidence and demand leading to more cautious corporate behavior, and a broader economic slowdown. That’s when the hard data finally catches up to the vibes. For now, it’s a waiting game. One of these stories has to give. Either the vibes improve and the economy keeps cruising, or the numbers eventually start reflecting what people are already feeling. My bet is on the latter, but we’ll know soon enough.