Consumers cutback amid growing economic doom and gloom

Authors note: This is one in a series of blog posts related to business reporting class assignments.  While interesting (I hope!) they will likely not have much to do with municipal finance.

NEW YORK CITY — Twenty-four-year-old Orlando Estrada makes nearly 50 percent less money than he did three years ago.

Estrada, who moved to New York from Guatemala five years ago in search of work, did not lose his job as a commercial painter when the recession hit. But as available painting jobs and hourly wages for the work dropped, so did his income.

And lately, with no sign of an economic turnaround in sight, he said he is always fearful that his job could be at risk.

In turn, Estrada says he has cut back his spending on anything but the essentials: food, transportation and rent and utilities for his apartment in the Jackson Heights neighborhood of Queens.

“Living these days especially in this city, you have to make choices,” he said.

Estrada is one of many Americans who — facing slashed hours and wages or unemployment — have curtailed non-essential spending since the recession hit, studies show.

Recent surveys suggest that an unemployment rate hovering around 9% and government gridlock about how to fix it are fueling widespread consumer pessimism about the state of the economy. As a result, experts say many Americans are unlikely to change their reduced spending habits anytime soon.

“Consumers have become more cautious spenders,” University of Michigan economist Richard Curtin said in the August report of The Survey of Consumers, a monthly nationwide telephone survey conducted by Thomson Reuters and the University of Michigan.

One-third of all American households reported income declines in August, according to the survey, and a majority said they anticipated no increase in household income during the next year.

In order to fill that income gap, consumers are more likely to cut back on spending then use savings or take on additional debt, according to the report.

For Brooklyn resident Jason Melville, who has been unable to find full-time employment since his May graduation from Brooklyn Law School, the cutbacks have been significant.

This month, Melville and his fiancé Hilary, who works for a television production company, moved from their $2200 a month 1-bedroom apartment in Cobble Hill to a $1250 1-bedroom in Crown Heights.

Even after the move, Melville listed rent as their largest expense, followed by groceries and bills. He said they’ve significantly cut back on eating out, compared to when they used to go to restaurants or order take-out several times a week.

He said he credits his current situation as a direct effect of the struggling economy and worries about how long it will take for him to find a job.

“Pre-recession, it would be an anomaly for somebody with my resume to not have found a job yet,” he said, citing his law school honors and previous work experience as a project engineer. “Now, it’s more the norm.”

He’s not alone in his frustration.

Sixty percent of Americans think the economy will get worse or remain the same in the next year, according to a Gallup poll released last week.

The Reuters/University of Michigan survey linked a growing pessimism about the state of the economy to a “plunge” in consumer confidence last month.

“Consumers have shifted from being optimistic about the potential impact of monetary and fiscal policies to a sense of despair and pessimism about the role of government,” Curtin, the economist, said in the report.

The survey reported that household plans to buy durable goods — or goods, which that are not readily consumed, like cars or jewelry — fell near recession lows in August, with job and income uncertainty given as a primary reason for postponing these purchases.

For Estrada, the commercial painter from Queens, it’s been the new clothes and electronics he used to buy that have been slashed from his budget.

And for Melville it meant proposing to Hillary with a family heirloom. He wants to buy her a new engagement right, he said, but doesn’t feel comfortable making such a big-ticket purchase without a promise of full-time employment.

“We save pretty much everything we can, mostly because we just don’t know how long my unemployment will last,” he said. “I have savings, but I can’t spend it on anything major until I know when I will have a paycheck.”

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