Psychology of Bad Times Fueling Consumer Cutbacks
Job Worries Mount, 73% Spending Less on Holidays
Americans continue to render extremely bleak assessments of economic conditions, both with respect to the national economy and their own financial situations. Fully 92% of the public rates the national economy as only fair or poor, and a substantial majority (61%) judges their personal finances that way. Both measures are among the most negative recorded in Pew Research Center surveys over the past 15 years.
The public’s bearish economic outlook is spurring ever growing numbers of consumers to say they are cutting back on purchases or reconsidering their saving or retirement decisions. As a result of what’s been happening with the economy recently, 60% of Americans say they are changing the way their money is saved or invested, up from just 48% two months ago; 32% say they have adjusted their retirement plans. Substantial minorities also say they are either delaying or shelving plans to make major household purchases (45%) or buy a home or make major improvements (44%). And fully 73% say that they plan to cut back on holiday gifts this year.
The latest survey by the Pew Research Center for the People & the Press suggests that the psychological impact of bad times, rather than an actual decline in people’s financial conditions, is the principal driver of these cutbacks and reconsiderations. Nearly six-in-ten (59%) of those who say they are cutting back or delaying purchases report they are doing so because they worry things might get worse. Just 28% say they are cutting back because their financial situation has gotten worse.
Worry is the overwhelming factor in spending cutbacks being made by more affluent consumers: 72% of those with family incomes of $75,000 or more per year cite concerns about what might happen as a reason for their intended cutbacks. Among less affluent people the fear factor still predominates, but many more people cite an actual worsening of their situation as a reason for cutbacks.
The new survey, conducted Dec. 3-7 among 1,489 adults reached on landline phones and cell phones, finds that no single economic problem stands out as the principal cause of public anxiety. When asked about what worries them most, about equal numbers cite rising prices (31%), problems in the financial markets (29%), and the job situation (26%). In October, personal concerns about prices were somewhat greater than today, while worries about jobs were less prominent. People with lower family incomes express greater concern about prices, while affluent people worry more about problems in the financial markets.
There is little in the survey to suggest that lower fuel and food costs have had a positive impact on the public. The percentage of people saying that gasoline is easy to afford has climbed from just 27% in July to 67% in the current poll. Less dramatic but clear improvements are also seen in the number of people who say it is easy to afford utility bills and food. Yet the percentage of Americans saying that it is easy to generally afford the things they want has fallen, from 49% in early October to 43% currently. And despite falling energy costs, 47% say they expect inflation to increase over the next year.
At the same time, concerns over jobs and employment have increased, and most people expect this situation to worsen. More than six-in-ten (63%) believe that unemployment will increase next year, which is higher than the percentage who say that inflation will increase (47%). An even greater number (73%) say that jobs currently are hard to find in their local community. Similarly, on a more personal level, 56% of those who are employed say that jobs in their line of work are hard to find.
The most positive news in the survey is that the public remains relatively optimistic about the long-term fundamental vitality of the economy, the current psychology of bad times notwithstanding. The new poll finds 43% expecting that the national economy will be in better shape a year from now, and a 56% majority believing that their own financial situation will be improved a year from now.
There also is no evidence that the current downturn has taken a toll on the public’s overall optimism or on its confidence in the government’s ability to solve economic problems. More than two-thirds (68%) agree with the statement “As Americans, we can always find ways to solve our problems and get what we want”; that represents a modest increase since early October (64%) and a more substantial rise since December 2004 (59%). Moreover, most Americans (59%) continue to say that the government still has the power to fix the economy even though the United States is part of a global economy.
While the public remains confident that the government has the power to improve the economy, it sees no quick fix for the financial crisis. Nearly twice as many people say that financial difficulties of banks and other institutions will get worse in the future (62%)as say the worst is behind us (32%). In this regard, the public remains divided over the federal bailout plan: 47% say it is the right thing for the government to invest billions to secure financial markets and institutions, while 43% say it is the wrong thing.
The public offers varying support for other proposals aimed at addressing economic problems. Fully 70% say it is the right thing for the government to spend billions to substantially increase spending on roads, bridges and other public works projects; comparably large majorities of Democrats (73%), independents (71%) and Republicans (65%) favor this idea.
However, there are sizable partisan differences over spending billions to help homeowners facing disclosure on homes they cannot afford and to make loans to General Motors, Ford and Chrysler to help them stay in business. About twice as many Democrats as Republicans say it is right to help out foreclosed homeowners (60% vs. 31%); 45% of Democrats endorse loans to struggling automakers, compared with 31% of Republicans.
The survey finds a highly positive public reaction to President-elect Obama’s appointments and his overall handling of the transition. More than seven-in-ten (72%) approve of the job Obama has done in explaining his policies to the American people while about as many (71%) approve of his cabinet selections. About two-thirds (68%) believe his cabinet picks have been about right, rather than too liberal or too conservative. Nearly half of Republicans (47%) say that Obama’s choices have been about right ideologically. By comparison, in January 2001 just a third of Democrats said President-elect Bush’s picks were about right.