Are we in a recession or ‘vibecession’?

After a long week of work, the weekend is here, and it’s payday. After taking a look at your checking account, you stop by the grocery store to pick up a few items for dinner and dessert.

But suddenly, the thought of tasty food is replaced with fear. Looking at the prices of your favorite treats, you can see your paycheck shrinking each time you place an item in your shopping cart.

Your paycheck takes another hit, this time when paying for gas at the gas station on your way home. Everything seems to be getting more expensive. At a red light it hits you: “We must be in a recession.”

Many people are feeling this pain right now. More than 1 in 3 workers (34 percent) currently feel like they’re living paycheck to paycheck, according to Bankrate’s 2024 Living Paycheck to Paycheck Survey.

Things might seem bleak, but are we in a recession? Or are we in a “vibecession”? How you perceive the state of the economy (the current economic vibes) might be different from reality. The debate over whether the U.S. is in a recession or merely experiencing a “vibecession” has gained traction as of late as several economic indicators have painted a somewhat confusing picture.

While the technical indicators of a recession are absent, many Americans feel like they’re living through one. Read on to learn why there’s a disconnect between economic data and consumer sentiment.

The current state of the economy

As of this writing, the U.S. economy is not in a recession. Economic indicators such as gross domestic product (GDP) remain strong.

In the second quarter of 2024, the U.S. GDP grew at an annual rate of 2.8 percent, up from 1.4 percent in the first quarter, signaling economic expansion. Furthermore, the unemployment rate hovers around 4.3 percent, which is relatively low. Inflation has also started to cool. It is currently at 2.9 percent, down from 3 percent in June.

“There have been volatile moments in financial markets,” says John Jones, investment advisor representative at Newberry, Florida-based Heritage Financial.

“However, there has been some speculative sentiment toward what the future could hold,” Jones continues. “Any news or economic catalyst can sway opinion and market sentiment at any time, and I really do believe the market fed into this ‘any time’ sentiment in that there is caution that a dramatic event could change the course of our current momentum.”

What is a vibecession?

The term vibecession, coined by Kyla Scanlon, author of In This Economy? How Money & Markets Really Work, is a combination of “vibe” and “recession.” It refers to a situation where, although the economy is not technically in a recession, the general mood or “vibe” among consumers suggests otherwise.

“A vibecession is a disconnect between consumer sentiment and economic data,” Scanlon tells Bankrate. “Most of the time it stems from existing issues like structural affordability – the housing crisis, eldercare costs, childcare costs – things that aren’t showing up in the way we traditionally measure economic success, like GDP.”

A vibecession is driven by perception rather than hard data. It reflects how people feel about the economy, influenced by factors such as inflation, job market uncertainty and the cost of living.

Roughly 85 percent of people say inflation has altered their spending habits, and 53 percent have significantly cut back due to concerns of a cooling job market, according to a study conducted by Zety. When people talk about a vibecession, they’re often describing a situation where economic anxiety is widespread, even if the economy, by traditional metrics, is doing well.

“The vibrational shift, or vibecession, is a reflection of collective fear and uncertainty,” adds Jonathan Feniak, head of finance at Company Sage and general counsel at LLC Attorney. “Consumer sentiment significantly impacts market dynamics, which further necessitates financial preparedness and literacy.”

What is a recession?

Unlike a feeling of being in a down economy, a recession is a significant decline in economic activity across the economy, lasting more than a few months. It is typically marked by a fall in GDP for two consecutive quarters, rising unemployment, reduced consumer spending and a slowdown in industrial production.

Economic downturns are a natural part of the economic cycle that can be triggered by various factors, such as financial crises, excessive inflation or external shocks such as pandemics or wars. While recessions can have severe impacts, they’re also temporary, and economies usually recover over time.

Why consumers feel like there’s a recession when there isn’t one

Despite positive indicators, many Americans are experiencing economic anxiety. High prices for everyday goods, high housing costs and fears about job security have created feelings of unease.

“Currently, our economy is on a recovery trajectory with relative stability and growth,” says Feniak. However, consumers may perceive a recession due to the uneven distribution of this recovery, the lingering effects of the pandemic or personal financial struggles.”

Right now, many consumers don’t feel like the economy is in a good place. Several factors contribute to this perception:

Inflation: Even though inflation has stabilized, dropping from 3 percent in June to 2.9 percent in July, rates have been trending higher in recent years. For example, in June 2022, inflation peaked at 9.1 percent before settling at 6.5 percent by the end of that year.

Consumers are feeling the pressure. It’s tougher than ever to save money and get ahead. Since February 2020, consumer prices have increased 20.9 percent, according to a Bankrate analysis of Bureau of Labor Statistics data. The increased cost of living, from groceries to utilities, puts a strain on household budgets, making people feel like their money isn’t going as far as it used to.

Unaffordable housing: Housing prices have soared, making it difficult for many to afford a home. The housing crisis exacerbates feelings of financial instability. The average cost of owning and maintaining a single-family home in the U.S. has increased by 26 percent over the last four years, according to Bankrate’s 2024 Hidden Cost of Homeownership Study.

Job market uncertainty: Although the unemployment figures remain modest, there’s a growing sense of job insecurity. The rise of gig work, concerns over automation and frequent layoffs in some industries contribute to a feeling of uncertainty. It’s hard for some people to feel at ease when they’re greeted by a sea of green banners each time they log into LinkedIn.

Bankrate’s Job Seeker Survey revealed that 33 percent of workers are worried about job security. Their concern isn’t unfounded. The unemployment rate has seen a slight increase. As of this writing, it’s 4.3 percent, up from 3.8 percent the year before.

The news: News coverage, social media and personal experiences shape how people perceive the economy. Constant exposure to stories about inflation, layoffs and financial hardships can create a collective anxiety that feels recessionary, even if the economy is in a good place.

How to protect your money during an economic downturn

Whether or not the country is in a recession, it’s wise to take steps to protect your finances during times of economic uncertainty. Here are some strategies to consider:

Build an emergency fund. Aim to save three to six months’ worth of living expenses in an easily accessible account. This fund can be a lifesaver if you face unexpected expenses or a job loss. Bankrate’s 2024 Annual Emergency Savings Report found that more than one in three (36 percent) U.S. adults have more credit card debt than money saved in an emergency savings account.

Cut unnecessary spending. Reducing discretionary spending can help you save more and create a financial cushion.

Diversify your investments. Diversifying your investment portfolio can help mitigate risks during economic downturns. Consider a mix of stocks, bonds and other assets to spread risk.

Pay down high-interest debt. Reducing your debt burden can relieve financial stress and improve your financial stability. You’ll also have more money to put into a savings account.

Bottom line

During times of economic uncertainty, it’s important to focus on strategies that can help protect your wealth. While the economy may not be in a recession, it’s important to remain prepared.

“While sentiments drive the idea of a vibecession, understanding and acting upon hard economic indicators will always guide consumers in a better direction,” says Mark Pierce, Founder & CEO of Wyoming Trust & LLC Attorney. “Remember, don’t let the ‘vibe’ cloud your judgment or derail your long-term financial strategies.”