Shoppers cut back, but that may hurt

Consumers' reaction to a shaky economy could lead to recession

Maureen Burns has stopped buying groceries at Harris Teeter and started shopping at Wal-Mart.

She's holding off on fixing a dent in her car.

And she's getting her children interested in clipping coupons.

But this isn't a story about families struggling to keep their heads above a tide of economic troubles.

Burns' family is doing well financially because of her job taking reservations at American Airlines and her husband's at phone book publisher R.H. Donnelly.

They have enough in savings to pay for their two daughters' college tuitions, and they have eight months of backup income in case there's an unexpected expense.

Still, Burns is being cautious, because she can't shake the "what ifs:"

What if we're laid off?

What if there's no bonus this year?

And what if there's some emergency to cover?

"Just every day in the news," she said, "the stock market's dropping. This company's reporting a loss. That company's reporting a loss. That company is laying off. ... The signs are scaring me. It's just making me very nervous."

But more than making her nervous, Burns' case of the financial heebie-jeebies could be the thing that tips the economy into a full-fledged recession. Cautious shoppers -- even those who probably have little reason to worry -- could easily stifle whatever economic mojo is left by simply cutting back.

That emerging economic anxiety has driven consumer confidence, as measured in February by the private Conference Board, to a four-year low. The survey included responses from 5,000 households.

Shoppers, who fuel two-thirds of the U.S. economy, already are doing some pruning, and national retail chains are feeling the effects. Many are reporting slow sales, filing for bankruptcy, laying off employees and closing stores. The government said last month that personal spending, after factoring out inflation, was flat in January.

And as the economic picture darkens, there is a risk that negative consumer sentiment will snowball into a sharp cut in discretionary spending.

"In some senses, it's a self-fulfilling prophecy," said Dan Ariely a behavioral economist at Duke University. "The idea that consumer confidence can crash the market or boost it tells you that it's not always about reality."

The psychology of consumers shouldn't be underestimated in bad economic times, said Tony Plath, finance professor in the UNC-Charlotte's Belk College of Business. More than anything, he said, consumers hate uncertainty.

"There's a sense of impending doom," he said. "We keep reading about how there are significant negative trends out there, but we don't see it here yet, really. It's beginning to catch up with us. It is beginning to slow down."

Until recently, the economy has been propped up by consumers who ran up balances on credit cards, bought at zero percent interest and took out home equity loans for cars and other large purchases. Many shoppers did so while saving little or nothing.

Now that the economy is on less sure footing, financial insecurities can be exaggerated, economists say.

Housing market blues

Allison Friar of Morrisville has been doing a lot of budgeting math. She is planning a wedding in May, and she and her fiance, Ryan Anderson, are planning on selling their homes and buying a bigger house together.

Friar thinks they will be able to make a 40 percent to 50 percent down payment on their new home, but she's concerned because she's relying on the sale of their homes for that money.

"The challenge for us is: How's the housing market going to affect our ability to sell those houses and get the equity out that we think we will get?" she said.