Michelle Mathious Jordan would like to exchange a gift she recently received for her 9-month-old son. But she’s afraid to go to the mall.
“I don’t want to set myself up to buy something and get back into that groove,” said Jordan, 32, a reformed spendthrift who quit her job with a chemical company in Atlanta to open a stationery boutique.
“When I was still in corporate America, I had this attitude that if I wanted it, I’m getting it. That has certainly changed. I’m worried about the state of the economy. My husband and I are on a budget.”
Jordan isn’t alone in her uncertainty. Despite a string of improving economic reports and Federal Reserve Chairman Alan Greenspan’s recent assurances that U.S. households are managing their debt just fine, a number of Americans are asking, “If the economy is improving, then why do I still feel so crummy?”
On Friday, the University of Michigan’s final reading of consumer sentiment this month fell to 94.4 from January’s final reading of 103.8, which was its highest level in over three years, according to Reuters news service.
Economists say several factors are driving the downbeat mood. For one thing, labor markets have yet to recover from wrenching layoffs–2.3 million jobs lost in the last two years.
Others say Democratic rivals for President Bush’s job have effectively highlighted the challenges facing the country, from the burgeoning federal deficit and rising personal bankruptcies to the outsourcing of American jobs.
“This is very much a kitchen-table-to-kitchen-table view of the economy,” said Samuel Jerdano, executive director of the American Bankruptcy Institute. The ABI last week reported 1.66 million bankruptcy filings in 2003, a new record and a 5.2 percent increase over the previous year. The majority of those filings were by households.
“There is a disconnect between household finances and general economic trends,” Jerdano said.
Indeed, household debt is growing at the fastest rate in nearly 20 years, spurred by rock-bottom interest rates.
“There’s no doubt we have become a more materialistic society,” said Kishor Thanawala, a Villanova University economics professor who studies behavioral economics. “And once we’ve attained a certain level, we’re unable to adjust to the belt-tightening that might be involved.”
Some blame themselves for their financial troubles, admitting their inability to cease shopping and dining out.
Gina Robeson, 29, of Knoxville, Tenn., is still paying off nearly $5,000 she ran up on a credit card during a trip to New York. “I went nuts in New York. Now there’s not a lot I can go crazy with,” said Robeson, who owes creditors more than she earns in a year.
Jordan and her husband, Jeffrey, meanwhile, have hunkered down.
The couple has a household income of about $125,000. But with so many economic uncertainties, they worry that he could lose his job as a chemical engineer.
“We have savings accumulated in case my husband loses his job. But in no way are we comfortable to the point where we can go out and spend, spend, spend,” she said.
That has some economists concerned: Consumer spending, after all, accounts for two-thirds of the economy.
“We’ve been talking about this recovery for over a year now and, lo and behold, we haven’t actually netted any new jobs,” said Heather Boushey, an economist with the Center for Economic and Policy Research, a Washington think tank.
Consumers stretched too thin
At ComPsych, a Chicago-based firm that designs employee assistance programs, calls for financial help from its 700 clients went up by 69 percent in the last year, with the majority of calls related to debt, refinancing and failed investments.
“People stretched to be able to buy the things they wanted or would like to have. They bought the BMW instead of the Toyota, because interest rates were low,” said Richard Chaifetz, chief executive of ComPsych. “What they thought was a comfortable debt burden will become less comfortable.”
Many people failed to account for the unexpected–such as the basement flooding, a fender bender, or property tax increases–when determining how much debt they shoulder. Or they got caught short-funded when commissions and overtime pay dried up as the economy headed into a downturn.
Unexpected layoffs add stress
For newlyweds James and Heather Hills, the unexpected came in the form of Heather losing her job last week as a recreational therapist for a mental hospital in the Washington, D.C., area, reducing their $70,000 annual household income to around $30,000.
The couple, who rent an apartment for $1,100 a month in Arlington, Va., got married in December in Ohio instead of Washington to save money, figuring they could pay off the wedding debt in a few months. Now, they’re not so sure.
“[Her job loss] shook us up. We’d developed a plan for spending and knew how much we could afford to go into debt. It’s adding stress on our new marriage,” said James Hills, a writer for an online publication. “Even with our diligent planning, it isn’t going to work now. We’re having to create a new plan.”
