TO KILL THE VIBE, FIRST TRY UNDERSTANDING IT
EDU DDA JUNE 4, 2024
Summary: How much of this overwhelming “vibe” of recession is real? According to most mainstream sources, it is purely a matter of biased perspective. That view seems to be based on solid data. Yet, it is actually grounded in incomplete interpretation of questionable data that gets more so not less. Some important recent updates raise more problems by showing the “vibe” has already been far more plausible.
I finally found out who coined the term “vibecession.” It was a Substack writer who at the end of June 2022 wondered if the American public would essentially talk itself off the economic cliff. Sure, consumer prices were weighing on most people and the US economy was just coming out of a “technical recession”, otherwise everything seemed just grand.
Employment was surging, or so it was said (in reality, jobs were very slowly coming back from the depths of the pandemic; “slowly” even though purported gains were enormous by historical comparison, which just goes to show just how deep the prior harm had been). By that standard alone, recession should have been the furthest thing from anyone’s mind.
Yet, within a matter of months other economies around the world ostensibly in the same shape and on the same trajectory did enter recession, notably Europe. Japan followed only a couple quarters later. Bond markets were absolutely right.
In both places, officialdom was slow to admit the truth, too, only grudgingly and just recently accepting reality. Whether or not the contraction “looks” like it is “supposed to” is irrelevant. In many ways, you can and probably should argue we never left the last one (let alone the one before that way back in the decade before the last decade). One person’s boom is an entire country’s depression.
Context is always missing from these discussions which fixate on the short run. Monthly or quarterly changes are thrown around as absolutes with no attempt to ground them in a wider meaningful framework. Most mainstream observers say the job market in the US is booming, maybe at worst a modest slowdown though from a very hot level. I say it is a disaster being already 4-plus million below its pre-pandemic baseline (and 23 million short of the pre-2008 one).
You can’t ignore those latter numbers, yet those who don’t are classified as idiots.
Seriously. Britain’s left-wing Guardian newspaper commissioned a substantial poll of Americans just a couple weeks ago asking them their thoughts on the state of the economy. Its purpose was to transparently discredit criticism (they made it partisan, not me) as little more than the heightened biased emotions of the illiterate; elitism at its worst, particularly in light of just how unaware the poll-takers were to the actual background.
They found exactly the results desired: a majority of Americans, 56%, say the US is experiencing a recession already in 2024. That sounds like the kind of finding you should pay closer attention to. Instead, the real point of the exercise was to undermine those “feelings” by noting how 49% polled also think the unemployment rate is at a 50-year high while the same proportion believe the stock market is down for the year.
In other words, don’t listen to the rubes they don’t even know stocks are booming and unemployment is near a 50-year low. What Economists derisively label ersatz Economics might really be closer to the truth.
While those numbers do show a lack of fuller awareness, they might also indicate more than the Guardian cheerleaders will allow on the most important points. It isn’t surprising that the average American like the average Brit or European wouldn’t necessarily know the exact stat in question.
More than likely, they are turning to impressions they have of whichever parameter and struggling to put a precise number on it – which sounds not unlike what many data collectors are going through when you get right down to the current period (more on this in a moment).
What I mean is, someone might believe unemployment is up for maybe closer reasons than anyone observing conditions from the outside; perhaps they’ve been laid off or someone they know, perhaps multiple someones, thus they might not know what the exact unemployment rate is but they’re experience tells them it isn’t a good number.
Same for stocks. If you aren’t a CNBC junky (perhaps glued to reddit or X), you may not know what the S&P 500 or NASDAQ indexes are especially since both are being driven by a suspiciously narrow slice of the equities market. Someone who might only look at the individual names in their portfolios should be forgiven when they feel like stocks in general are probably down because a whole bunch actually are; far more than you’d think if all you saw was the top-line index number.
Who is “more” correct in that case?
We shouldn’t dismiss these concerns so casually, but elites cannot help themselves given their contempt for everyday folks. What the “little people” continue to tell us is, wherever the numbers might come out, the actual situation they can observe is far from good, more than likely getting worse to the point of already triggering deep anxieties.
If this was all just nothing as the Guardian greasily concluded, we would only see these as actual outliers. The fact that half of Americans polled don’t know what the unemployment rate is doesn’t mean they don’t see unemployment. The fact so many clearly do is concerning.
Yet, the narrative is driven by a combination of fallacies not data. Again, the numbers by themselves don’t mean much. It’s instead interpretation what is really in question therefore the opinion of authorities are supposed to carry more if not all weight.
Jay Powell says boom, so even those who can see such broad and real economic misery because they actively deal with it end up self-censoring themselves into what amounts to a contradiction. They just sheepishly repeat how the economy is booming but then go on to report how entire swaths of the population can’t feed themselves meaning in all likelihood the economy isn’t booming.
The economy is booming but purportedly two-thirds of the entire American middle class says it is facing significant hardship.
“The economy is booming, and yet many Americans are still gasping for air financially,” said Jennifer Jones Austin, chief executive officer of the Federation of Protestant Welfare Agencies, an anti-poverty advocacy organization that is part of the team that commissioned the poll. “They simply don’t have the breathing room to plan beyond their present needs.”
Those are some massive qualifiers to what sounds like a boom in name only (BINO?) Quite simply, many are afraid to speak up and challenge the mainstream assumption fearing they might be quickly ostracized by the likes of the Guardian or whichever other equally unaware “authoritative” source.
Part of the inspiration for these exercises beyond strictly discrediting criticism is to strengthen that very perception of authority. It has taken a beating in recent times for a variety of legitimate reasons. In the economy, most people quite intuitively understand how officials will lie to their faces smiling ear to ear as politicians do.
Those poll results cited above are as much about skepticism over the figures themselves as conditions on the ground. This is and has been a big problem for Big-E Economics which has struggled with various measurement problems. Those were always in the background, more fodder for academic discussions than the center of public skepticism.
Since around, oh, 2008 or so, more and more data has just been off. Some of that is the lacking context and the improper focus on monthly changes – when 20 million former and never-got-to-be workers are “missing” from the official unemployment rate, do you think anyone really cares if it moves down or even up by a tenth of a percentage point? When it does, claiming substance from those narrow short-term moves is intentional interpretation.
People know the interpretation of the data doesn’t match their perceptions of reality and when it is off that much the number of people feeling the mismatch soars to alarming levels. Like in the poll. That shouldn’t be a reason to dismiss the feelings; on the contrary, it is the opposite a solid reason to begin questioning numbers and opinions.
After all, again, in Europe the continent has been in recession for a year and a half yet only recently did anyone in the mainstream say anything about it.
In the US, there is a good chance a full recession might have developed as early as last fall. The economy was a very substantial part on the way there from before and all that without even getting into the argument as to whether the economy may have actually left the previous cycle at all. Today’s JOLTS data, for example, ignored by most of the media in this debate, once again showed a substantial hiring freeze remains in place.
Only now that Job Openings have truly tumbled does anyone take notice, or make a different interpretation than booming and only because Jay Powell takes those into account (even though the series is worthless).
What about the HH Survey/Establishment Survey divide? The next time I hear about it in the mainstream media will be the first. Perhaps someone at the Guardian has written a blurb in a story somewhere, but it sure didn’t make it into the poll article.
The thing is, we keep getting more confirmation about the HH view of the US economy than what resembles the payroll report. And that also includes a big one, the QCEW. In fact, this data is the Establishment Survey’s Establishment Survey.
The QCEW draws on a truly massive sample. According to the BLS, it takes data from the various state unemployment insurance payments – if you hire someone on the books you’re paying into a state unemployment fund so every legit position will generate a tax payment – to reach what it claims is 90% of all employers across the entire country covering 95% of all employees.
With that much raw data unfortunately the QCEW takes quite some time to compile and then get released. It took the BLS until just a few weeks ago to report the estimates up to Q4 2023. And those estimates showed the Establishment Survey had in all likelihood wildly overstated job gains last year, by about 700,000 out of the 3 million figured.
To begin with, you can see that the QCEW and CES estimates track each other very closely from the beginning, as they are supposed to. There is really only one instance when the two diverge, for unknown reasons through the post-Euro$ #3 labor slowdown heading from 2016 into 2017. During those months, QCEW estimates were closer to the CPS numbers, believe it or not.
Other than that, you won’t find serious deviations…until 2023.
According to the latest estimates, the rate of changes for the QCEW are well below those of CES and once again closer to CPS. If we take those QCEW changes and plug them into the CES for payrolls (which is a strictly back-of-the-envelope exercise; the CES series is seasonally adjusted while QCEW is not and there are a number of other factors which render this pro forma far from apples to apples, so FWIW) it would be the equivalent of roughly 660,000 fewer Establishment Survey positions by the end of last year.
Out of 3.01 million, that’s a big miss. It may not seem like much, yet getting cut down to 2.3 million thereabouts puts payrolls in a similar range to 2016, for example, or 2018 while being well below 2015, not exactly good comparisons.
And it’s even more important given what has come after it in 2024. What if the labor market to end last year was substantially weaker than previously thought, more along the lines of the QCEW? You can see the difference begins around August, too (I imagine you’re just shocked right now that oil and gasoline prices might have produced an even larger negative impact on the US labor market,)
This possible difference wouldn’t put the US labor market into recession at the end of 2023, it would move the major payroll figures closer to one heading into 2024 as well as increase the distance to the prior trend meaning more fuel to the previous recession debate. With unemployment rising, a weaker Establishment Survey makes the booming jobs market narrative less credible and the general “vibe” across the country that much more plausible.
Mainstream commentary is certain the US economy is strong and booming. It claims there is no evidence otherwise, only the wildly off-base anecdotes of the uneducated. Mainstream commentary also doesn’t know what it doesn’t know. There is more than a good chance the Americans they hold in contempt have a better feel of the current situation than the less-than-solid numbers they throw around.
The US economy is more than likely to have been much weaker already than the narrative has otherwise been crafted to appear. The only real question isn’t how much of that doubt is real, it is weaker by how much and how much that more that would add to the overwhelming evidence of a serious cyclical downside developing.
As far as the payroll numbers go, the QCEW already proposes serious downward revisions at some point probably long after they’d be helpful. Even so, I still half expect Friday’s figure to be three-quarters if not a full million. Even then it wouldn’t be enough to kill the vibe because it’s a lot more than simply some vibe.
