Americans are now more worried about their job prospects than at any time since 1993, raising the risk that consumer spending, the cornerstone of the economy, will slow even if the US quickly resolves its standoff with Iraq.
With business investment stalled for the last three years, strength in consumer spending, which accounts for about two-thirds of all economic activity, has been the most important driver for the economy. Even with unemployment rising and wages barely increasing, low interest rates have encouraged people to keep spending, especially on new homes and cars.
But if people continue to perceive jobs as difficult to come by, they are very likely to cut back on discretionary spending, even if interest rates stay down, economists say.
"The minute they become apprehensive about their jobs, which is the primary source of income, it tends to produce a curtailment in spending," said Lynn Franco, director of the consumer research center at the Conference Board, which surveys consumer confidence and employment prospects each month. "The labor market must improve to build a sustainable recovery."
The Conference Board's own survey shows people have become increasingly pessimistic about finding new jobs, with only about 1 person in 10 believing jobs are plentiful.
In addition to the weak labor market, higher oil prices, rising local and state taxes, and fears of war and terrorism have damaged overall consumer confidence. On Friday, the University of Michigan reported that its survey of consumer sentiment fell in February to its lowest level since September 1993, with an index reading of 79.9. The Conference Board's survey, released on Tuesday, also showed a sharp drop in consumer confidence for February, to a level not seen since November 1993.
Overall confidence levels, however, are very volatile, and if the US quickly defeats Iraq or ousts Saddam Hussein, those reports may show quick and sudden improvement, as they did in 1991, after the defeat of Iraq in the Persian Gulf war. Economists say the way people view their job prospects is much more important than their overall confidence levels in determining how much they will spend.
In 1991, even after overall confidence surged, many big companies announced mass layoffs, and consumers continued to view jobs as difficult to find.
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