From the NY Times:
Americans are bracing for rising unemployment and shrinking salaries, a gloomy outlook that could translate into a serious cutback in consumer spending, the primary engine of the economy.
A private survey of about 2,500 households found that Americans feel worse now about the economy’s prospects than at any time since 1973, when Americans struggled with soaring oil prices and runaway inflation.
Fears often prove overblown, of course, and this particular survey, which was released on Tuesday by the Conference Board, has a spotty track record as an indicator. But expectations can often be self-fulfilling: worried consumers are less likely to make the big purchases that help keep the economy humming.
“It signals a great deal of concern and anxiety and uncertainty among consumers,” Bernard Baumohl of the Economic Outlook Group, a research firm in Princeton, N.J., said of the survey.
“Add that to the fact that the job market has weakened dramatically, and incomes haven’t been rising very much — certainly below the pace of inflation — and you really have the ingredients of a significant cutback of consumer spending,” he said.
With home prices falling at record rates, Americans are also finding it more difficult to draw on their home equity, further depressing their spending power. A separate report on Tuesday said the value of single-family homes in major metropolitan areas plummeted 10.7 percent in January from a year earlier, the steepest annual decline since the 1990s housing slump.
“Consumer-led recessions are among the most difficult to turn around in an economy,” Mr. Baumohl said. “Particularly this one, because of the fact that many households feel a lot poorer than they did a year ago, primarily because of the collapse in the value of their homes.”
Sales of goods and services make up more than two-thirds of gross domestic product, so a significant spending slowdown can speed the onset of a recession or make a downturn even worse.
And the gloom among consumers appeared widespread. A quarter of those surveyed said that businesses conditions would worsen in the next six months, and nearly a third said the economy would have fewer jobs. Fewer Americans plan to purchase big-ticket items like refrigerators, vehicles and television sets, and more than half said that jobs were currently “not so plentiful.”