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Is the U.S. in a “vibecession”? Here’s why Americans are gloomy even as the economy improves.
The labor market is roaring ahead, wages are rising and inflation is slowing — all key metrics that economists point to as showing a resilient and strong U.S. economy. The problem is Americans aren’t feeling it.
The disconnect between gloomy consumers and upbeat economic data has sparked plenty of debate over the gap, with some experts terming it a “vibecession.” The idea behind the term is that Americans are basing their economic views on “feelings,” rather than on what’s actually happening in their financial lives.
For instance, inflation has come down a long way from its 40-year peak of 9.1% in June 2022. But about 3 in 4 consumers in swing states said they believe inflation is going the “wrong way,” according to a recent Wall Street Journal poll.
But there may be more than vibes behind Americans’ dour views, such as financial pressures that aren’t necessarily captured by data like the consumer price index, which measures the pace of inflation. For instance, the CPI doesn’t capture the impact of higher borrowing costs ushered in by the Federal Reserve’s 11 rate hikes to battle the hottest inflation in 40 years.
In other words, consumers are paying more for credit card debt and loans, but that’s not directly reflected in the CPI, which measures commonly purchased goods and services like groceries and clothing. Credit card debt reached a record $1.13 trillion in the fourth quarter, the highest since the Fed started tracking it in 1999.
“There are things that are intentionally excluded from the CPI — credit card costs are not in it,” noted Kayla Bruun, senior economist at Morning Consult. “It’s a big burden on the cost of living.”
It’s an issue that was underscored by former Treasury Secretary Larry Summers in a February research paper, with Summers and his co-authors pointing out that borrowing costs have surged “at rates they had not reached in decades.” That is boosting anxieties among Americans about the cost of financing major purchases, from cars to houses, the paper noted.
Consumers are likely going to cope with high borrowing costs for a while longer. While the Fed is expected to cut interest rates later in 2024, recent economic data and persistently sticky inflation has prompted some economists to forecast that the cuts could come later in the year.
One Fed official last week raised the possibility the central bank may not cut interest rates at all in 2024, which suggests consumers and businesses may not get much relief on the borrowing front anytime soon.
Inflation and loss aversion
The pace of inflation will get a reality check on Wednesday, when the latest consumer price index data will be released. Economists expect prices in March rose 3.4% on an annual basis, reflecting a slight uptick from the prior month’s 3.2% rate, according to financial data firm FactSet.
While inflation has undeniably eased from its recent 2022 peak, inflation seems to moving sideways, according to a new report from Morning Consult. The recent inflation data is also higher than the Fed’s goal of returning to an annual inflation rate of 2%, and Americans continue to point to the issue as a top economic concern.
Some economists have pointed to wages that are now growing faster than the rate of inflation as a reason Americans should feel positive about the economy. But that ignores how consumers view prices — and the psychological impact of loss aversion, or why losing something (or paying more money for goods or services) makes a bigger impact than the equivalent gain, Bruun said.
“Consumers seem to be more bothered by prices than they feel the benefits of their wages increasing, psychologically,” Bruun noted. “My team’s theory on this is it comes down to loss aversion: you feel the sting of having to part with your money rather than the boost in your income.”
And Americans may be describing inflation as going in the “wrong” direction, even though it is in fact receding, because of their experiences with making purchases, Bruun noted.
“Consumers look at prices and see prices are up, and if you are asked, ‘Is inflation up or down from a year ago?’ they know prices are up from a year ago, and so they’ll say, ‘Prices are going up, and that means things are getting worse’,” she noted.
Even though inflation is cooling, prices are continuing to rise, albeit at a slower pace than in the post-pandemic inflationary surge. It’s likely that consumers will eventually get used to these higher price levels, but that could take some time, Bruun added.
“When people realize, ‘Okay this is what things cost now’ and realize they can afford it,” the gap between economic data and Americans’ views on the economy could close, she predicted.
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There are many reasons to consider investing in gold right now. With high inflation, geopolitical unrest and the coming election, having a healthy safe haven allocation in your investment portfolio makes sense. And, gold is an effective way to protect your portfolio from risk.
Gold’s price has seen strong growth this year, too. After starting the year off at $2,063.73, the price of gold climbed to $2,439.98 by May 20. But that price has since cooled. Today, gold is trading at around $2,380.00 per ounce. Although that’s significantly lower than gold’s May record high, it still represents more than 15% growth year-to-date.
While there are many reasons to invest in gold, it’s important to make the right moves when you do, particularly this July.
Invest in gold now to give your portfolio a boost.
3 gold investing moves to boost your portfolio this July
You can use gold to improve your portfolio’s performance in a few ways this July. Some of the most effective include:
Focus on allocation
Gold’s price has grown quite a bit this year. And, the safe haven properties of the precious metal are valuable given the current economic, political and geopolitical climates. So, you may want to add quite a bit of the yellow metal to your portfolio. But, you shouldn’t overdo your investment.
While gold is an attractive safe haven, the stock market’s performance has been strong this year, too – the S&P 500 is up around 17% year-to-date. And, it’s important to balance your portfolio with a healthy mix of safe havens and traditional assets like stocks and bonds.
Most experts say you shouldn’t allocate more than 10% of your portfolio assets to gold. Some suggest that a 5% gold allocation is more reasonable. So, consider your investment goals, the other assets in your portfolio and how gold relates to those assets when choosing your allocation. But, in any case, keep your holdings to a maximum of 10% of your portfolio’s assets.
Take advantage of gold’s safe haven and inflation protection properties today.
Invest now
Gold’s price is down but it may not stay there for long. Gold’s price tends to go through cycles. Upward cycles are typically followed by downward cycles and vice versa. Based on the cyclical nature of gold’s price, there are two reasons why waiting to make your investment could be a mistake:
- The discount could disappear: If you buy gold now, you’ll do so at a discount to its most recent high. But, if you wait too long, that discount could disappear.
- You could be priced out: Gold isn’t a cheap commodity, even considering the current discount. And, if history is any indication, gold’s price will continue to produce long-term gains – regardless of the short-term cycles it experiences. So, if you wait too long, gold’s price could become cost-prohibitive – making it difficult to add the commodity to your portfolio later.
So, add gold to your portfolio now to take advantage of the current discount in its price and avoid any issues with being priced out of the market later.
Look for discounted options
Gold’s spot price is typically the price that’s quoted online. But, that’s not usually the price you pay when you purchase the commodity. In most cases, dealers add a markup to the spot price to generate a profit. So, it’s possible to overpay for the commodity if you’re not careful – but it’s also possible to find discounted options.
Many online gold dealers buy second-hand precious metals and resell them at a discount to their freshly-minted counterparts. And, while these products may have some imperfections and may not be the particular design you want, their value is in the weight of the gold they’re made with. So, when you look for these discounts, you could cut the cost of your gold investment while you take advantage of the benefits of adding the precious metal to your portfolio.
The bottom line
Gold is a compelling asset with valuable inflation protection and safe haven qualities. But, when you invest invest in the precious metal this July, it’s a good idea to make your investment strategically. In particular, invest now and be sure that when you do, you maintain a healthy allocation representing 10% or less of your portfolio’s value. Also, look for opportunities to buy gold at a discount. Doing so could cut the cost of your investment. Compare your options among leading gold dealers now.
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The Amazon Prime Day sale doesn’t start until next week, but the rival sales are starting now. Walmart, one of Amazon’s largest competitors, is launching its competing Walmart Deals sale today, with deep discounts on back-to-school gear, must-have tech, summer essentials and more.
The Walmart Deals sale officially kicks off today (Monday, July 8) at 5:00 p.m. ET (2:00 p.m. PT). Paid Walmart+ subscribers get five hours of early access to the deals, starting Monday at noon ET (9:00 a.m. PT).
We’ll be covering all the hottest deals today in real time, so we can point you toward all the biggest and best bargains today before they sell out. And if past Walmart sales (such as Walmart Deals for Days) are any indication, the best deals will sell out fast once they’re available to the general public.
Want to have a near-unbeatable advantage when it comes to scoring these deals? Sign up for Walmart+ now. The retailer is offering a special half-off offer on Walmart+ subscriptions this week, so you can join for just $49 for your first year. In addition to early access to today’s deals, you’ll get get free delivery from your local Walmart store, returns picked up from home, member savings on fuel and a complimentary subscription to the Paramount+ streaming service.
Tap the button below to get a half-price subscription to Walmart+ now. Once you’re signed up, read on to learn about all the hottest deals at Walmart Deals sale as we find them.