Cutting Back: Good for You, Bad for the Economy

Monique Blake won't be shopping for new clothes. William Acosta got rid of his cell phone. Paula Rockwell put off buying a home.

In ways both large and small, Americans are doing without. Squeezed by high prices for gasoline, food and other products, worried about their jobs and rattled by talk of a recession, people are hunkering down.

Each person's decision to give up something and trim spending can collectively carry crucial implications for the economy.

Personal spending accounts for the single-biggest chunk of gross domestic product, which measures national economic activity. Because of that, people's behavior is important in determining whether the country will survive the economic turmoil or fall victim to it.

Sixty percent of the public say they are now less comfortable about making a a big-ticket financial commitment, such as buying a home or a car, than they were just six months ago, underscoring their more circumspect behavior, according to the RBC Cash poll conducted by Ipsos, an international polling firm, in early April. A year ago, 48 percent said they were less comfortable about making a major purchase.

"I'm feeling more cautious about buying a house. We were thinking about that, but we'll be waiting a little bit longer than we otherwise would have," says Rockwell, 53, a homemaker in Baltimore, Md. She described the current economic climate as being fraught with insecurity. "A larger number of people are really hurting and even people fairly well off are feeling insecure," she says.

BIGresearch, a firm that tracks consumer behavior, said 53.6 percent of people they polled focused more on what they needed, rather than what they wanted, during their shopping trips over the last six months.

"It's more about cutting back rather than cutting out. Like taking your family to Pizza Hut versus Applebees," says Marshal Cohen, chief retail analyst at NPD Group, a consumer and retail research firm.

Clothing stores, furniture and home furnishing retailers, electronics and appliance stores, building materials and garden supply places, and health and beauty shops were among the merchants who saw their sales drop in March, according to a recent government report on retail sales around the country.

"I don't shop for clothes and other stuff. I just wear what I have," says Blake, 27, of Clanton, Ala.

Pam Goodfellow, a senior analyst at BIGresearch, says the frugality has put more of a focus on "smart shopping and bargain hunting. People are picking up fewer items to complement what they already have."

Shoppers are tightening the belt in the face of a number of negative forces.

Employment conditions are deteriorating. Job losses for the first three months of this year are nearing the staggering quarter-million mark and the unemployment rate has climbed to 5.1 percent, the highest since the aftermath of the devastating Gulf Coast hurricanes in 2005.

Rising prices for food, energy and other goods and services are taking a bite out of paychecks. Workers' average weekly earnings — adjusted for inflation — fell to $279.80 in March, a 1 percent drop from the same month last year. With gasoline prices, marching toward $4 a gallon, people are left with less money to spend on other things.

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