Recession, Energy Worries Turn Americans Gloomier, Poll Finds

By Matthew Benjamin

Dec. 5 (Bloomberg) — Confidence in the economy continues to erode, with expectations of a recession growing and a solid majority of Americans now saying the economy is doing poorly, according to a Bloomberg/Los Angeles Times survey.

The growing pessimism is being driven by higher energy costs, the weakening dollar and fallout from the subprime mortgage crisis. To stem foreclosures, most Americans want the government to require lenders to freeze interest rates on adjustable-rate loans in danger of default.

The gloom is pervasive, with poll respondents saying by a margin of 71 percent to 23 percent that they expect a recession within a year. That percentage has risen steadily over the course of 2007. Over half of those surveyed — 56 percent — say the economy is doing badly, six weeks after a poll in which Americans were divided on the economic outlook. In June, a majority said the economy was doing well.

The housing market's only going to get worse,'' said Sherry Bossie, 46, an accountant from Dunbar, West Virginia, and a participant in the survey.Put that together with escalating oil prices, and we’re at great risk.’’

The negative sentiment also reflects broader dissatisfaction among Americans, almost two-thirds of whom say the nation is seriously off on the wrong track.

Reflecting the rising economic anxiety, almost four in ten Americans plan to spend less this holiday season on presents for friends and family, according to the poll. Only 15 percent plan to spend more.

Energy Prices

The belt-tighteners most often cite higher energy prices as the reason for their caution. Among households earning more than $100,000, three in 10 say they will spend less and 13 percent say more.

The subprime crisis and the weakening dollar have Martha Goodman, a 58-year-old homemaker from Virginia Beach, Virginia, worried about the national economy and her own budget. I probably will spend less this year because I think it's a good time to be conservative,'' said Goodman. Concerns about a slump aside, 66 percent of those in the survey call their personal finances very or fairly secure, versus 30 percent who say they're shaky. The Nov. 30 to Dec. 3 poll of 1,467 adults had a margin of sampling error of plus or minus 3 percentage points. A plurality of poll respondents -- 36 percent -- cite rising energy prices as the leading threat to growth. Triple Whammy Oil prices topped $98 a barrel in late November, before settling back below $90, and the average price of a gallon of regular gasoline in the U.S. rose above $3, up from $2.76 in mid-October. Existing home sales fell to the lowest level in eight years in October, and banks announced billions of dollars in mortgage-related losses. The dollar, meanwhile, has dropped about 11 percent this year against the euro. Some 45 percent of those surveyed say the increase in foreclosures and subprime mortgage defaults is hurting their community, versus 24 percent who say there's been no impact. Subprime loans, given to people with poor or incomplete credit histories, typically offer a low introductory rate for the first two or three years. The rate then resets for the duration of the mortgage. About 100,000 such loans will reset each month over the next two years, according to research by UBS AG, which many economists say could help trigger a recession. Almost six in 10 poll respondents say lenders should be required to freeze interest rates to subprime borrowers who can't make higher monthly payments. Bailout Plans That lends support to a proposal by New York senator Hillary Clinton for a mandatory five-year freeze on subprime rates. Treasury Secretary Henry Paulson has proposed a milder solution through an agreement among lenders to fix some subprime mortgage rates before they reset to higher rates. A mandatory freezewould be good idea,’’ says Carlo Scuderi, 57, an auto-industry worker in Washington Township, Michigan, where he says foreclosures are rampant. Lenders brainwashed some of these people into loans they knew that they wouldn't be able to afford after a few years, so now they should pay the price,'' said Scuderi, a self-described independent. More than seven in 10 Democrats in the poll have a downbeat view of the economy, versus 33 percent of Republicans. Independents, by a margin of 58 percent to 40 percent, say the economy is doing badly. Even with their guarded optimism about the economy, almost two-thirds of Republicans call a recession likely in 2008. Gloomy Perceptions A majority of Americans in all income groups surveyed, including 56 percent of those with household incomes above $100,000, say the economy is doing badly. That group was the lone holdout in an October poll, when only 37 percent of respondents in the bracket felt that way. While recession risks are rising, many economists still say a 2008 slump can be averted. Economic growth will average 2.4 percent next year, according to a Bloomberg survey of 70 economists. Americans continue to view free trade with suspicion, with 44 percent saying it has hurt growth and 27 percent saying it has helped. Growing U.S. exports this year have partially offset a slowdown in consumer spending. Should public expectations of a 2008 slump come to pass, the Democratic Party would be better at jump-starting economic growth than the Republican Party, respondents say by a margin of 45 percent to 30 percent. Tiffany Baker, 28, an at-home mother in Minneapolis, Minnesota, said she's lost confidence in Republican economic stewardship under President George W. Bush.If Bush is a Republican, then I trust the Democrats to get the economy going,’’ said Baker, 28, who plans to vote for the first time next year.

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