Yahoo Finance Reporter Josh Schafer joins the Live show to discuss the latest consumer sentiment print, what that means for the "vibecession," and takes a look at how economists such as Goldman Sachs' Jan Hatzius feel about inflation and the markets going forward.
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- Americans feeling better about the state of the economy. So does that mean the vibecession has come to an end? Well, Josh Schafer is here with a closer look. Joshua.
JOSH SCHAFER: I'm kind of sad we're going to get rid of the word vibecession. I don't know about you two, guys.
- So too.
JOSH SCHAFER: But it was one of my favorite things of the last year to, I guess, give a little bit of a definition on that, right? Basically, the theory was while the economy never went into a recession, the vibes kind of felt like we were in a recession. And you can sort of see that all over different indicators, including that University of Michigan's Consumer Sentiment Index that was out.
When you just take a look at that broad chart that we have for consumer sentiment, it had been down significantly low since the pandemic. You could see after 2020, it actually took further legs lower the overall sentiment index. We got a 29% jump, guys, in the last two months alone. That was the biggest combined jump we've seen in two months since 1991.
So for a massive, massive rally to happen like that, really, what are people feeling? And they're starting to feel the better parts of the economy, right? They're feeling inflation coming down, as you guys mentioned, off the top of those expectations. They're still spending money. Take a look at retail sales in December--
- Yeah.
JOSH SCHAFER: --still coming in better than people expect. Fourth quarter GDP right now expected to be about 2%, a sign of growth overall in the economy. So it seems like consumers starting to pick up on the fact that this economic data-- well, they were told coming into '23, it wasn't going to be good. It wasn't actually bad in 2023. And people are starting to sort of realize that a bit.
- You just have to-- it's opposite year always--
JOSH SCHAFER: Yeah.
- --at the beginning of the year. That's all you have to know. But seriously, when we talk about the federal reserve and all of this data interplay, there is a lot of talk about the rate cuts. And I kind of alluded to the fact that the market isn't pricing in as steep a rate cut, even that first rate cut as we thought only a week or a month ago.
JOSH SCHAFER: Yeah, we're having stocks at a record high right now, right, which, of course, brings up something like consumer sentiment. And I think the rally we saw in the last two months helps that. But when you think about the rate cut discussion, Jared, one of the arguments would be, well, if good economic data is making people feel good about the economy, wouldn't good economic data also mean the fed shouldn't cut because they need to be more restrictive?
And I thought Jan Hatzius over at Goldman Sachs had a great answer to this question when he spoke to our team over in Davos. I want to take a listen to what he had to say.
JAN HATZIUS: The driver of rate cuts in our forecast and I would say in what Chair Powell said in the December press conference is that inflation is coming back down to the target. If inflation comes back down to the target, there will very likely also be rate cuts because of 5 and 3/8 federal funds rate is going to just seem very, very high relative to an economy that's producing a 2% inflation rate.
JOSH SCHAFER: So Jan really highlighting there that the reason the fed would cut for a team like Goldman, who sees the economy growing in 2024, would just be inflation coming down. And so the key thing to watch would be something like the PCE index that we're getting next week and not necessarily how strong the economic data is. The strong economic data is just going to give us that soft landing.
- Yeah, there were some economists-- I want to get your take on this too. They were sort of-- here's how they were kind of framing it. They were saying, if-- going back consumer sentiment, if the index was, you know, around 100 or near 100 in early 2020, then you look at 78.8. And it's a good-- it's a better number. But it doesn't really indicate they would say, like, you know, dancing bears and rainbows. It's-- they would kind of frame it as it's just less pessimistic.
JOSH SCHAFER: Yeah, well, I think overall-- I mean, think about what economists are saying. And still, if we want to talk vibes--
- Yeah.
JOSH SCHAFER: --the vibe coming into '24, right, it's not like the clear call for this year is all of a sudden, we're going to have robust growth. You know, it's going to be a big year for the economy. Most people, the consensus sort of call is basically gradual growth, not great growth, not necessarily recession, but not something that you're-- we're going to be roaring about either.
So I think the consumer sentiment index still reflecting that a little bit that--
- Yeah.
JOSH SCHAFER: --while might not be set up to fully go into a recession depending on who you ask, we're also not expecting massive growth.
- And then a no landing is the upside scenario--
JOSH SCHAFER: Yeah.
- --that actually is not great for the fed. So there you go.
JOSH SCHAFER: All right. Plenty to discuss as always.
