Americans on economy: This hurts
Nationwide poll locates sore spots as consumers are knocked around by inflation and gas prices. Consumers hunker down but feel optimistic about future.
NEW YORK (CNNMoney.com) -- Some economists say the United States is not in a recession, but don't tell that to the majority of American consumers.
A national CNN/Opinion Research Corp. poll released this week found that the recent economic downturn has taken its toll.
Americans are driving less and even cutting back on necessities such as food and medicine. The financial strains have led a vast majority of people to believe that the U.S. economy has entered a recession.
"This economic downturn will be relatively mild according to the numbers," said Wachovia economist Mark Vitner. "But the pain and discomfort for the consumer will be the most severe since 1991, and possibly since 1981 to 1982."
But there is some hope for the future, as a majority of those surveyed feel that the economy will rebound in 2009.
Majority think U.S. economy is in a recession. Americans think the economy is now in a recession and the number who feel that way continues to grow.
Of the more than 1,000 adult Americans conducted March 14-16 , 74% said they believe the nation is now in a recession. That figure rose from 66% in February and 61% in January.
Economists' definition of a recession is two consecutive quarters of negative GDP growth, and though growth was sluggish in the last quarter - 0.6% - the U.S. economy has not yet shown one quarter of retraction. But to the average American, times are still tough.
"What they're describing is different from a recession - they're giving a common sense definition of a recession," said Wachovia economist Mark Vitner. "They're saying that these are tough economic times, and from that perspective they're absolutely right."
Inflation is top concern. Most Americans think times are tough because they are feeling the pinch from rising prices.
The survey showed that 65% said they are "very concerned" about inflation, and 26% said they are "somewhat concerned."
Unemployment concerns also loom large, with 59% saying they are "very concerned" and 27% saying they are "somewhat concerned" about job losses.
According to the Department of Labor, the United States has already lost 85,000 jobs so far in 2008, with February's net job report showing the worst loss in nearly five years.
American's concerns framed the issue that faced the Federal Reserve, which attempted to balance the threat of recession against rising inflation in its 3/4 percentage point cut of its key interest rate Tuesday.
The central bank cuts rates in order to boost the economy and, in this round, to stave off a recession. But lower interest rates can also weaken the dollar, sending inflation higher.
Though the Fed decided to cut rates further, it noted that "uncertainty about the inflation outlook has increased," in a statement following the rate cuts Tuesday. But the central bank said it will closely monitor inflation in the future.
"The Fed is definitely concerned, because [inflation] issues impact consumers," said Wachovia economist Sam Bullard.
Cash strapped, and driving less. Escalating prices - specifically rising gas prices - have taken their toll on Americans, causing them to drive less.
Seventy-two percent of respondents said recent price increases in gasoline have caused financial hardship for them or their households.
"For some time we've been trying to determine the breaking point for when gas prices take their toll on the consumer," said John Kilduff, an energy analyst at the trading firm MF Global. "It appears we've found that point."
Rising fuel prices have caused most Americans to cut back on their driving. Of the over 1,000 American adults surveyed in the poll conducted March 14-16, 64% said they have made some changes to their driving behavior as a result of higher gas prices, with 19% saying they have cut back on driving enough to have a major effect on their daily lives. And 5% say they have stopped driving altogether.
Financial pain hits close to home. The slumping economy is not only hurting Americans at the pump, but it's causing pain where it hurts the most: daily necessities like food and drugs.
Thirty percent of respondents are trimming their spending on food and medicine and that 57% are worried they will have to cut back soon. Nearly half said they have cut back on how much heating or electricity they use in their homes, and 53% are concerned that they will have to trim spending on heating in the future.
"Consumers are definitely feeling a pinch on rising prices of staple products like food," said Wachovia economist Adam York. "There are some consumers that are having some real trouble in this environment."
Typically in an economic downturn, consumers have shifted their spending from discretionary items like electronics and leisure activities in order to continue paying for food and drugs. But continually escalating prices may have left consumers with little left to cut.
A recent Commerce Department report shows that consumers' food and beverage spending dropped 0.2% in February from the previous month and grocery store sales fell 0.3%.
"Instead of buying steak, they're buying chicken," said York. "People are buying generics and reducing spending by shifting to cheaper alternatives."
Confident in 2009 turnaround. Though times are tough now, Americans believe the economy will bounce back by next year.
The poll showed 60% of respondents think economic conditions in the United States will be "good" next year, as opposed to the 75% who think the economic situation is "poor" now.
"Most people realize that the economy has cycles of ups and downs," said Bullard. "Fortunately, the last two recessions were some of the shortest on record, so in 2009 we should be pulling up out of this."
Americans agree with the economists. Eighty-three percent said they are "confident" that they will be able to maintain their standards of living next year, and 85% are "confident" they will keep their jobs over the next six months.
Consumers also showed faith that they would be able to pay off their future debts, with 90% of respondents demonstrating confidence they would be able to meet their monthly mortgage payments for the duration of the mortgage. Nearly as many Americans - 83% - said they could pay off college loans, car payments, and credit cards in the future. The average amount of credit card debt of those polled was $4,000.