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NEW YORK -- While the government continued to report dire news about the nation’s economy, a new report by Mintel predicted beaten down American consumers will soon tire of hearing about financial worries and woes and begin spending again.
"On a very basic level, people are feeling credit crunch-ed out," said Susan Menke, senior financial services analyst at Mintel, a global research company. "The financial crisis is all we've heard about, read about and thought about for weeks. Add that to the fact that many people truly are struggling financially and you've got a nation looking for some relief and distraction."
With the presidential election and holiday season just around the corner, Mintel expects many Americans to let go of fierce financial worries and begin thinking about other issues. The economy's recent signs of stability and the U.S. government's bailout plan give people more reasons to feel confident.
When Mintel surveyed adults in June, nearly three-quarters (74 percent) said they were worried about "the economy in general." But only 27 percent were worried about "the effect of the 'credit crunch' on my bank" and only 29 percent about "the effect of the 'credit crunch' on my ability to get a loan."
In September, at the height of consumer uncertainty, Mintel conducted another survey, this time among high net worth individuals. Though 64 percent said they were investing more conservatively and 58 percent said they were cutting back on spending because of the economy, more than two-thirds (68 percent) believed the U.S. economy would improve over the next five years. Another 65 percent felt confident their own financial situation would improve.
Menke said she believes these survey results offer insight into many Americans' experience of the credit crunch: "Across the board, people are very concerned about the economy. But at the end of the day, Americans care most about what affects their daily lives directly. For those who haven't felt a major pinch from the credit crunch, immediate life stressors like work, health and family will begin to take precedence over abstract economic woes."
For a more discouraging outlook on the nation’s economy and consumers, one can look to any number of other news sources. The New York Times, for example, reported Friday on the drop in economic activity and quoted economists predicting more bad news in the months ahead. The publication said the global financial crisis is now squeezing businesses as well as consumers, causing more layoffs and prompting Congress to consider new stimulus spending.
The consumer spending drop in September was the largest amount in four years. The Commerce Department reported personal spending fell by 0.3 percent last month, the biggest decline since June of 2004. That followed flat readings in both July and August, contributing to the worst quarterly performance in 28 years, according to The Associated Press.
"The economy has taken a turn for the worse, big time," Allen Sinai, chief global economist for Decision Economics, a consulting and forecasting group, told The Times. "Consumption literally caved in. It is a prelude to much worse news on the economy over the next couple of quarters. The fundamentals around the consumer are all negative, and there are no signs of any help anytime soon, from anywhere."
The economy began slipping in the last quarter of 2007, at a 0.2 percent annual rate from October to December. Then it grew modestly for six months, but has hit the brakes again the past three months. Consumer spending fell at a 3.1 percent annual rate between July and September, after growing at a 1.2 percent annual rate in the previous three months. That was the largest three-month drop since the second quarter of 1980.
The government reported last week that the gross domestic product declined at an annual rate of 0.3 percent in the third quarter, a signal that the country was falling into a recession even before the severity of the current financial crisis was fully felt.
This month, consumer confidence plunged to its lowest level on record, attesting to what The Times called “the new psychology of worry and scrimping that now holds sway.”
Consumer incomes showed only a slight rise of 0.2 percent in September, half that of August, a slowdown that partly reflected the adverse effects of Hurricane Ike along the Gulf Coast. The storm hurt rental payments and earnings from businesses affected by the weather and its aftermath.
In data released last week, investment by businesses slipped by 1 percent in the third quarter, raising fears that further reductions in capital spending will result in more layoffs. The current unemployment rate of 6.1 percent could jump to more than 8 percent by the middle of next year if economists’ worries are realized.
On the bright side, U.S. exports continued to grow in the third quarter—expanding at a 5.9 percent annual rate—although that figure was down from the 12.3 percent rate achieved from April to June. As foreign markets in Asia, Europe, Latin America and the Middle East continue to suffer, American exports are expected to shrink as well.