Liz’s view
The Biden vibe-cession has turned into the Trump vibe-spansion.
The previous administration was felled by the emotional gap between the actual economy (pretty good) and how people felt about it (pretty bad). President Donald Trump is enjoying the opposite: Companies and consumers are behaving like everything is fine, despite plenty of warning signs that it isn’t.
The labor market is weakening; today’s revisions were bleak. Inflation is stuck above the Federal Reserve’s target of 2%. More US companies went bankrupt in July than in any month since 2020. One of every $8 in outstanding US credit card debt was severely delinquent at the end of June, the highest level since 2010. AI has wallpapered over cracks: As Matthew Klein pointed out recently, spending on data centers has just barely offset declining warehouse construction, raising questions about whether we’re experiencing a “but-for-AI recession.” If AI turns out to be as economically miraculous as it is technologically marvelous, no harm done. If not, those cracks will have been deepened by neglect.
But economic actors are whistling past the graveyard. Real consumer spending grew at a solid 2% annual rate in August, global M&A volumes are up 30% from last year, and the corporate bond market is on fire. Investors haven’t been this sanguine about blue-chip debt since 1997.
“The markets are saying, ‘nothing to worry about,’” Jonny Fine, who oversees high-grade debt underwriting at Goldman Sachs, tells me.
Vlad Barbalat, who manages more than $100 billion as chief investment officer of insurer Liberty Mutual, cited “a feeling of goodwill” between executives and the Trump administration — also heavy on vibes, not outcomes. “The business community felt like they didn’t have an audience” under Biden, he said. “This administration seems to be open to the business community articulating its needs and challenges. The policies don’t necessarily result, but it’s translating into the way people do business.”
Psychology can trump data in today’s attention economy, especially if nobody trusts the data anyway. Reality may catch up — consumer sentiment legged down in August after two months of improvement — but the vibes have a head start. Just ask Joe Biden.
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Room for Disagreement
“If what we care about is not some abstract number of jobs or level of GDP, but rather the well-being of the typical American worker, then the relevant measures are the unemployment rate, wage growth, and productivity growth,” which are all fairly healthy, writes Oren Cass, the right’s star economist of the moment. And “if a temporary contraction is the price to be paid for correcting 30 years of irresponsible trade and immigration policy, it is a price worth paying, and one best paid quickly.”
Notable
- Trump’s approach to the economy, whatever its outcome, is likely to “be unrecognisable as the US economic model of recent decades,” The Guardian’s economic editor Heather Stewart wrote.