The gloomiest outlook for the economy in 35 years may be forcing Americans to live with what they have and save up for what they want.
Lynda Nicely has been living in a sparsely furnished rental apartment in a Milwaukee suburb since October while she saves enough money for furniture at a secondhand store. And when temperatures soar this summer, she plans to buy a fan, not an air conditioner.
"I am a little rattled," said the 28-year-old resident of West Allis, Wis., who took a second job as a waiter and plans to hoard three months worth of emergency cash just in case she loses her primary job in public relations.
A growing number of anxious people across all income segments are shopping at less expensive stores, reacquainting themselves with the library, paying down credit card debt and cutting back on new clothes and cars, vacations and meals out. The psychology of the American consumer has turned as worries heighten about the job market, the slump in real estate and soaring daily living costs.
Industry followers say shoppers' fear, which has been escalating since July, could very well worsen what ails us.
Such spending cuts could be "a self-fulfilling prophecy" and could hasten the economy's slide, said Lynn Franco, director of the Conference Board Consumer Research Center.
"I don't think (the spending slump) has bottomed out," said Candace Corlett, principal at consulting firm WSL Strategic Retail. "Shoppers are learning a new behavior: how to resist temptation. There is a lot of fear out there."
Such worries are driving shoppers to cut back on big-ticket items like appliances, delay redecorating their houses and shop at discounters like Wal-Mart Stores Inc. and thrift stores for secondhand clothing. They're particularly avoiding full-priced fashion chains and mall department stores.
Shoppers' economic outlook for the next six months is at a 35-year low, levels not seen since the oil embargo and the Watergate scandal, according to a reading last week by the Conference Board, a business-backed research group. The report showed that fewer consumers plan to buy big appliances like air conditioners, TVs and refrigerators within the next six months.
According to a preliminary tally by UBS-International Council of Shopping Centers, March retail sales slid 0.5 percent versus its original estimate of 1 percent growth. The results released Thursday, based on same-store sales or sales at stores opened at least a year, were the weakest since March 1995, when the industry registered a decline of 0.8 percent.
Many analysts expect only a small sales lift starting in May when consumers begin receiving rebate checks from the federal government's stimulus plan, but any bump should only be temporary. Michael Niemira, chief economist at the shopping center group, believes the malaise could extend into next year.
Consumers are also increasingly concerned about inflation, with the Energy Department anticipating that gas prices will peak near $3.50 a gallon this spring. Many analysts believing prices could go much higher.
Mounting debt payments are also making shoppers cut back. U.S. families now spend more money on debt service, absorbing more than 14 percent of disposable income, than on food, which accounts for 13 percent, according to a Merrill Lynch & Co. report. That is higher than during the last recession in 2001 when 13.2 percent of household disposable income went toward debt, Merrill Lynch said.
That shows how "deep the credit problem is in terms of its impact on household cash flow," wrote Merrill Lynch economist David Rosenberg.