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- A core measure of inflation closely followed by the Federal Reserve fell month-over-month for November.
- At the same time, a measure of how Americans feel about the economy jumped nearly 14% in November from the previous month.
- Americans are still spending and feeling better about the economy. The vibecession is over.
The so-called "vibecession" may be over, as Americans start to feel better about an improving economy.
On Friday, the Commerce Department reported the personal consumption expenditures price index fell 0.1% in November from the previous month, the first decline since April 2020. It's up 2.6% year-over-year and is a sign the US can continue controlling inflation while avoiding a recession.
The core PCE index, which is another measure of the same report but excludes food and energy prices that are more volatile, increased 0.1% in November from October — and up 3.2% compared to last November.
The PCE is the Federal Reserve's favorite gauge for inflation, which it watches closely in an attempt to bring inflation down to its 2% target. Over the last six months, the PCE measured 1.9% on an annual basis, below the target.
Does this mean the war on inflation is over, and the US might avoid a recession and instead stick a "soft-landing?"
Many economists predict that to be the case and that the Fed will hit its inflation target without unemployment rates drastically rising.
After all, consumer spending continued to rise in November as well, suggesting Americans are still eager to spend around the holiday season, even with credit card debt at all-time highs and student-loan payments impacting over 43 million Americans.
Consumer expenditures for last month rose 0.2% from the month prior, while income increased 0.4%. Americans are increasingly willing to dish out money on services, which increased 0.2%. The price of goods, many of which have experienced disinflation over the last few months, fell 0.7%, while food prices decreased 0.1%.
And job growth remains strong, as this year, the economy added an average of 232,200 new jobs each month. The unemployment rate has lingered between 3% and 4% since early 2022. Additionally, the share of prime-age workers with a job or on the job hunt is at 83.3%, which is about the highest percentage since 2002.
All of this is finally making Americans see that the economy is doing well.
The University of Michigan Index of Consumer Sentiment increased 13.7% month-over-month in December — and 16.6% over the last 12 months, driven by a surge in expected business conditions. This spike brought consumer confidence levels back to July levels, though sentiment is still well below pre-pandemic levels. The report noted that sentiment improved across age, education, geography, income, and political identification.
The "vibecession," the disconnect between how the economy is doing and how people think the economy is doing, might be shrinking. All this suggests the Fed may be on target for the first of its projected three interest rate cuts in early 2024. The Fed has kept the benchmark overnight borrowing rate at a target rate of between 5.25%-5.5% since last raising rates in July.
"Disinflation is in the data now, and that is wildly positive for the economy and the market," wrote Jamie Cox, managing partner for Harris Financial Group. "The Federal Reserve is very likely to begin cutting rates in March."