Latest news with #vibecession
Yahoo
4 hours ago
- Business
- Yahoo
Bad ‘vibes' may be having a bigger impact on the economy now
There has been a disconnect in recent years between the so-called soft economic data and the hard data as weak readings on consumer confidence didn't always translate to lower payrolls or GDP. But that may be changing as key buffers that propped up spending are disappearing, according to NerdWallet senior economist Elizabeth Renter. Americans used to say one thing about their feelings on the economy and do something else with their actual dollars. But that may be changing. The disconnect between weak readings on consumer confidence versus solid employment, income and GDP data was previously described as a 'vibecession' by economist Kyla Scanlon, who first used the term in her 2022 Substack post. The last vibecession hit as inflation was at the highest levels in more than 40 years, while an aggressive rate-hiking campaign from the Federal Reserve spiked borrowing costs, making auto loans and mortgages more expensive. But consumers continued to spend as the labor market remained robust. And aside from a brief dip in GDP, the economy avoided a recession. Confidence surveys also increasingly reflected partisan differences more than the actual economy. Fast forward to 2025. Consumer sentiment collapsed after President Donald Trump launched his trade war, and GDP shrank again, skewed by a rush to buy imported goods ahead of higher tariffs. Still, payrolls have held up, and inflation hasn't been as affected by tariffs as feared. But while sentiment recovered a bit after Trump postponed his highest tariff rates, it's still 20% below December 2024 levels. 'Despite this month's notable improvement, consumers remain guarded and concerned about the trajectory of the economy,' the most recent University of Michigan survey said. At the same time, the Trump administration is slashing spending and jobs, with ripple effects reaching contractors and even certain real estate markets. Businesses that are uncertain about the economy and the direction of tariffs have slowed hiring. Student-loan delinquencies are up, and AI is eliminating many entry-level jobs that once went to newly minted college graduates. Then there's oil prices, which have jumped since Israel launched airstrikes on Iran. The cumulative effect is taking a toll. 'I don't think the U.S. consumer has grown numb or blind to the headlines and economic risk—over the past month we've seen some sentiment scores rise slightly, but we have to think about where they were rising from,' Elizabeth Renter, senior economist at NerdWallet, said in a note on Friday. 'A little bit better doesn't necessarily mean good, even if it might mean hopeful.' As a result, it's getting harder to dismiss the so-called soft data on the economy and focus instead on the hard data. That's as Fed Chairman Jerome Powell has said he and his fellow policymakers won't act on rates until the hard data on unemployment and inflation gives them a clear reason to. But the soft stuff may be leaking into the hard stuff. 'Unlike a few years ago, the 'vibes' now stand to have a greater impact on behavior, and thus the health of the economy,' Renter wrote. 'That's because unlike a few years ago, people don't have the luxury of easily stumbling into a better job or relying on excess savings and debt payment forbearances.' In fact, household debt is rebounding to pre-pandemic levels and beyond, eroding the ability to absorb an unexpected expense or job loss, she added. Bill Adams, chief economist at Comerica Bank, similarly drew a direct line between consumer sentiment and actual spending. Digging into the May retail sales report, he noted that consumers didn't just pull back on durable goods like electronics and cars, which fell after an earlier jump to get ahead of tariffs, they also reined in spending on daily expenses like groceries and restaurants. Spending at building material and garden supply stores also saw big drops, suggesting less residential investment in home improvements. 'With declines visible in unrelated categories, it looks like weak consumer confidence was to blame for the pullback in consumer spending last month,' Adams wrote. This story was originally featured on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
8 hours ago
- Business
- Yahoo
Bad ‘vibes' may be having a bigger impact on the economy now
There has been a disconnect in recent years between the so-called soft economic data and the hard data as weak readings on consumer confidence didn't always translate to lower payrolls or GDP. But that may be changing as key buffers that propped up spending are disappearing, according to NerdWallet senior economist Elizabeth Renter. Americans used to say one thing about their feelings on the economy and do something else with their actual dollars. But that may be changing. The disconnect between weak readings on consumer confidence versus solid employment, income and GDP data was previously described as a 'vibecession' by economist Kyla Scanlon, who first used the term in her 2022 Substack post. The last vibecession hit as inflation was at the highest levels in more than 40 years, while an aggressive rate-hiking campaign from the Federal Reserve spiked borrowing costs, making auto loans and mortgages more expensive. But consumers continued to spend as the labor market remained robust. And aside from a brief dip in GDP, the economy avoided a recession. Confidence surveys also increasingly reflected partisan differences more than the actual economy. Fast forward to 2025. Consumer sentiment collapsed after President Donald Trump launched his trade war, and GDP shrank again, skewed by a rush to buy imported goods ahead of higher tariffs. Still, payrolls have held up, and inflation hasn't been as affected by tariffs as feared. But while sentiment recovered a bit after Trump postponed his highest tariff rates, it's still 20% below December 2024 levels. 'Despite this month's notable improvement, consumers remain guarded and concerned about the trajectory of the economy,' the most recent University of Michigan survey said. At the same time, the Trump administration is slashing spending and jobs, with ripple effects reaching contractors and even certain real estate markets. Businesses that are uncertain about the economy and the direction of tariffs have slowed hiring. Student-loan delinquencies are up, and AI is eliminating many entry-level jobs that once went to newly minted college graduates. Then there's oil prices, which have jumped since Israel launched airstrikes on Iran. The cumulative effect is taking a toll. 'I don't think the U.S. consumer has grown numb or blind to the headlines and economic risk—over the past month we've seen some sentiment scores rise slightly, but we have to think about where they were rising from,' Elizabeth Renter, senior economist at NerdWallet, said in a note on Friday. 'A little bit better doesn't necessarily mean good, even if it might mean hopeful.' As a result, it's getting harder to dismiss the so-called soft data on the economy and focus instead on the hard data. That's as Fed Chairman Jerome Powell has said he and his fellow policymakers won't act on rates until the hard data on unemployment and inflation gives them a clear reason to. But the soft stuff may be leaking into the hard stuff. 'Unlike a few years ago, the 'vibes' now stand to have a greater impact on behavior, and thus the health of the economy,' Renter wrote. 'That's because unlike a few years ago, people don't have the luxury of easily stumbling into a better job or relying on excess savings and debt payment forbearances.' In fact, household debt is rebounding to pre-pandemic levels and beyond, eroding the ability to absorb an unexpected expense or job loss, she added. Bill Adams, chief economist at Comerica Bank, similarly drew a direct line between consumer sentiment and actual spending. Digging into the May retail sales report, he noted that consumers didn't just pull back on durable goods like electronics and cars, which fell after an earlier jump to get ahead of tariffs, they also reined in spending on daily expenses like groceries and restaurants. Spending at building material and garden supply stores also saw big drops, suggesting less residential investment in home improvements. 'With declines visible in unrelated categories, it looks like weak consumer confidence was to blame for the pullback in consumer spending last month,' Adams wrote. This story was originally featured on
Forbes
07-05-2025
- Business
- Forbes
Is Plunging Sentiment Enough To Derail The Economy?
When it comes to the economy, it's better to heed what consumers and businesses do rather than what they say. Economic survey data was already showing meaningful signs of deterioration during the first quarter of 2025, a trend that accelerated in April. For example, the Conference Board's Consumer Confidence survey had already dropped by 18.9 points from its November post-election peak through March, before April's 7.9 decline brought the measure back to the 2020 pandemic lows. Deteriorations like this typically only occur during recessions, meaning the degree to which weaker 'soft' survey measures translate into actual 'hard' data in the coming months will be crucial in determining the health of the U.S. economy. There is some debate about whether the hard data will ultimately follow the soft data, however. This primarily stems from what occurred in 2022, when soft data weakened precipitously in the wake of the Russian invasion of Ukraine, the regional bank crisis and elevated inflation, while the hard data largely held up. This period came to be known as the 'vibecession.' Even though many Americans didn't feel great about the health of the economy, their continued strength on the back of a healthy labor market, prior fiscal support and residual pandemic savings powered the economy forward. In 2025, the probability of consumer strength overpowering trade-related headwinds appears lower, in our view. While the labor market remains healthy with monthly job creation averaging 144k so far in 2025, this pales in comparison to the red-hot labor market of 2022 when monthly job creation averaged 380k (and 603k in 2021). Further cooling in the labor market could prove problematic for the economy given the fact that labor income represents the majority of spending power for most Americans. In the coming months, investor attention will be focused on whether hard data is rolling over. ISM New Orders, a snapshot of future manufacturing activity, have quickly deteriorated over the past few months as the trade war has escalated. While it is too soon for hard data indicators to show trade-related weakness, at least one — corporate profit margins — was seeing headwinds even before Liberation Day. NEW YORK, NEW YORK - OCTOBER 04: Traders work on the floor of the New York Stock Exchange during ... More morning trading on October 04, 2023 in New York City. The market opened up slightly high amid the release of the ADP employment report after all three major indexes closed dropping over 1% with the Dow Jones dropping 425 points. (Photo by Michael M. Santiago/Getty Images) Getty Images The deterioration in profit margins reflects events that unfolded prior to the escalation of the trade war. Inflation, and thus the pricing power of corporations, has cooled more rapidly than wages and other key input costs, crimping profits. This has driven profit margins down from record levels. In the absence of a trade war, this dynamic would be less concerning. However, the prospect of additional strain on margins in the coming months from higher tariffs appears likely. This is worrying because as margins contract and profits erode, corporate management teams are often eventually forced to lay off workers, starting or amplifying a recessionary feedback loop as consumers pull back given the loss of income. Given this, we see initial jobless claims as the single most important economic indicator to watch in determining the path of the economy. Claims have held up well in the weeks following Liberation Day, and we believe the late-April jump is a seasonal adjustment issue related to the timing of spring break in New York that will likely reverse in early May. However, slipping profit margins means there is less of a buffer should the labor market weaken or demand slow in the coming months. This leads us to believe that the current risk-reward tradeoff facing both the economy and financial markets skews to the downside. A positive change in trade policy or a renewed focus from the administration on its supply-side agenda (deregulation, tax cuts/fiscal support) could skew the outlook more favorably. However, prompt action is likely needed to counteract the negative (and building) effects of elevated uncertainty and margin pressure. Jeffrey Schulze, CFA, is Director, Head of Economic and Market Strategy at ClearBridge Investments, a subsidiary of Franklin Templeton. His predictions are not intended to be relied upon as a forecast of actual future events or performance or investment advice. Past performance is no guarantee of future returns. Neither ClearBridge Investments nor its information providers are responsible for any damages or losses arising from any use of this information.
Forbes
06-05-2025
- Business
- Forbes
3 ‘Ticking Time Bomb' Dividends You Need To Sell Now
Big bomb of money hundred dollar bills with a burning wick. Little time before the explosion. The ... More concept of financial crisis getty We just saw the first real signs that the 'vibecession' is becoming something more—and this is our cue to pluck from our portfolios (or avoid adding!) three funds that are way into bubble territory. (Names and tickers below.) Let's start with that slowdown signal. Credit Card Issues Apollo In this chart, from Apollo Global Management, we see that the total number of Americans who are only making the minimum payments on their credit cards is at its highest level in over a decade. This tells us that inflation and a slowdown in the job market are putting direct (and increasing) pressure on household budgets. There are other signs, too. Like a Lending Tree survey showing that the percentage of Americans who use 'buy now, pay later' services to buy groceries has more than doubled. That follows warnings from Walmart (WMT) a couple of months back (before President Trump's April 2 tariff announcement) that more Americans are cutting back due to high interest rates and persistent inflation. The natural instinct of mainstream investors is to sell and hide out when bad news arrives. But we're income investors first and foremost, and the last thing we want to do is cut off our income streams. In fact, times like these are exactly why we buy high-yielding investments such as closed-end funds (CEFs) ! These funds' high payouts (8%+ in the case of many CEFs) let us calmly fund our lives with our payouts when volatility hits. History also serves up example after example of why indiscriminate selling on bad economic news will hurt returns. Consider, for instance, the first peak in the chart above, at the start of 2013. If you'd sold then and waited to buy when the share of people paying the minimum on their debts bottomed out, in the spring of 2013, you would've missed out on a quick, steady return! Similar missed gains would've happened for someone who did the same at most of the peaks on the chart above. Which brings me back to those three overbought funds we're selling. In the CEF world, it's easy to see if a fund is overbought: Simply look at its discount or premium to net asset value (NAV, or the value of its underlying portfolio). If the fund is trading at a premium to NAV—particularly at an extreme premium like the three funds below—it's very likely overbought. CEF Sell Call No. 1: The Destiny Tech100 Fund (DXYZ) I warned about DXYZ in my February article. Back then, the fund had an absurd 807% premium to NAV (not a typo!). As of this writing, it's at a more 'modest' 490% premium. In part, that premium has shrunk because of the fund's 6.6% decline between the time I wrote about it and now. But keep in mind that this fund's return was actually down 29% until the last week of April. The volatility here is off the charts. DXYZ's focus on high-risk private companies has attracted a lot of attention and hype, but how long can that last if the market becomes more risk-averse and DXYZ is overpriced by nearly 500%? This is a clear sell, unless you want a roller coaster ride. CEF Sell Call No. 2: Gabelli Utility Trust (GUT) Our second top sell among CEFs is GUT, which is in many ways the opposite of DXYZ, focusing on utility stocks like NextEra Energy (NEE) and Duke Energy (DUK). But its premium to NAV is a whopping 71%. And for that, investors are getting a fund that has returned less than 2% in the last three years. Unless GUT swings to a lower premium or a discount, it's best to leave it out of your portfolio, despite its 11.2% dividend yield. CEF Sell Call No. 3: Barings Corporate Investors (MCI) Some CEFs offer lower (for a CEF) yields that are considered sustainable and attract prudent income investors. The 7.8%-yielding Barings Corporate Investors (MCI) is an example here: It's a well-managed fund with a long track record. Unfortunately, though, now is not the time to buy MCI, because its premium is 21%, and that premium has been creeping up for years now. This has made MCI's total return look impressive: Over the last three years, including dividends, investors have earned 87%, crushing the S&P 500's still-impressive 41%. But that's almost entirely due to the rising premium, since its portfolio of privately held debt hasn't appreciated nearly as quickly—up about 23% as of the end of 2024, the last time it was publicly disclosed. On an annualized basis, that NAV return (in orange above), rose just an annualized 7.2%, much less than the stock market and much less than MCI's payouts, which come to a 9.5% yield, based on the latest quarterly payout and per-share NAV, not the market price. When MCI shareholders realize MCI is underperforming stocks and that its total profits can't sustain its dividend, expect that premium to fade and MCI's market price to fall. If MCI were to cut its payouts, that drop would be worse. Michael Foster is the Lead Research Analyst for Contrarian Outlook . For more great income ideas, click here for our latest report ' Indestructible Income: 5 Bargain Funds with Steady 8.6% Dividends.' Disclosure: none
