The Vibe Economy: Old Wine in New Bottles

Everybody knows economies run in cycles, from boom to bust and everything in between. But ways of looking at the economy are also cyclical – from irrational exuberance to abject despair. Right now, we are in the cautious pessimism phase.

Many observers are calling the current iteration of economic thought the vibe economy or “vibenomics” to illustrate the disconnect between economic reality and consumer perceptions. Despite being substantially positive on a statistical level, many consumers and analysts view the U.S. economy as fundamentally negative on an emotional level. And that pessimistic vibe has pundits and prognosticators scrambling to explain how both perspectives can exist at the same time.

One need look no further than the Federal Reserve Board for evidence of this bewildering duality.

In the central bank’s latest Beige Book report – named for the color of its cover – Fed officials offer a glimpse into the economic psyches of business and commercial contacts throughout the 12 Districts that comprise the Federal Reserve. And the picture presented is a study in lowered expectations.

Reviewing the data gathered from early April to mid-May, the Beige Book found that “national economic activity continued to expand” in the period and “most districts reported slight or modest growth.” While not a ringing endorsement of an economy primed to rocket into the financial stratosphere, it is nonetheless a generally positive conclusion.

But in the finest tradition of Fed officials playing to close to the vest, the report reins in any expectations of booming markets and sunny skies, saying “overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks.”

This duality is no surprise, especially coming in the Fed’s Beige Book report because it combines statistical and anecdotal data that highlights the counterintuitive nature of thinking about the economy. Fed policymakers rely on the report that comes out eight times a year as key pieces of information when making decisions about the future course of interest rates and other central bank activities.

The problem is the mix of qualitative and quantitative data is like comparing economic apples to oranges. Both data sets have some merit, but there are key differences in the reliability and veracity of the information collected.

Quantitative studies of the economy, drenched in statistical analysis, rely on measurable data. They show specific values of a wide range of information from profit and loss to investment, depreciation and costs and beyond. Qualitative economic studies, however, rely on personal accounts that reveal how people feel about the economy. The anecdotal evidence garnered from surveys is not necessarily reliable because it is based on personal perceptions of reality, not reality itself. And in a climate where expectations outrun results, those perceptions tend to be far more negative than the actual situation calls for.

Commentators and pundits have waxed poetic about the idea of the vibe economy as if it is something new and different. But it’s not. We’ve always had a vibe economy because not every business owner, corporate board or individual consumer makes economic and financial decisions after careful calculation and consideration, but from their gut reaction to the situation.

Shoppers are lured to make a purchase by the bright displays of merchandise at the register line or in the advertisement. Many buying decisions are made not because a particular item is needed, but because it is wanted.

That’s the vibe economy at work and it’s not going away anything soon. We can strive to be disciplined spenders all we want, but sooner or later we will be enchanted by that shiny object that we just have to have.