The $700 billion government bailout passed last week aims to fix the balance sheets of troubled companies, but economists say it will do little to help the finances, and restore the confidence, of consumers anytime soon.
American households, whose spending accounts for two-thirds of the economy, will still have a difficult time borrowing money for a home or a car. Families will continue to rein in spending because of higher energy and food costs, and lower home values and stock market returns.
People are expected to cut back further after the tumultuous events of the past month, economists say. Consumer confidence has been shattered by the upheaval of all things Americans thought of as financially secure: their banks, insurance companies, money market funds, and retirement savings. Now many are also concerned about their jobs, as the economy most likely is entering a recession.
"Lost confidence cannot be easily regained," said Richard Curtin, director of the Reuters/University Of Michigan Surveys of Consumers. "Now the only issue is how deep and how long the cutbacks in spending last."
Even before the financial crisis erupted on Sept. 15, consumer sentiment had fallen 40 percent since last year and was hovering at 16-year lows, despite a slight rebound this summer following relief from record high gas prices. The daily reminders that the US financial system may be on the verge of devastation - much of it delivered by the nation's top leaders in extraordinarily blunt and grim language - has rattled Main Street to the core. Seventy-nine percent of people surveyed at the end of September "expected bad times in the economy during the year ahead," up from 57 percent earlier in the month, according to Reuters/University Of Michigan Surveys of Consumers.
On big-ticket items, Americans are already tightening their belts further. Sales for new cars and trucks fell last month below 1 million for the first time in 15 years, according to Autodata Corp. and the automotive site Edmunds.com.
Charlotte McCormack said she was feeling pretty calm about the economy before the meltdown, and continued her routine of weekly dinners out and trips to the Cape. But the last month has filled her with new worries, and she's saving more and cutting back expenses.
"I am more anxious about the current situation because it's not something that my generation has ever experienced in our adult lives, and nobody seems to know where it's going," said McCormack, 36, of South Boston.
Faced with nervous consumers, merchants are girding for one of the worst holiday seasons in decades. For retailers, the last two months of the year are their most critical period, when they can take in 25 to 40 percent of total sales for the year.
Shops, whacked by a weak back-to-school season, are canceling Christmas orders, hiring fewer part-timers, and launching early and aggressive value promotions, according to retail analysts. Last week Wal-Mart Stores Inc. unveiled plans to sell 10 toys, including some Barbie dolls and Tonka trucks, for $10 each, and to rev up holiday sales by opening Christmas-theme sections in stores next week.
Last month, market research firm TNS Retail Forward projected that holiday sales would increase 1.5 percent over last year, the weakest growth since the recession of 1991, when they grew 1.2 percent.
Frank Badillo, an economist at the firm, said the Wall Street turmoil has punched new holes in consumer confidence that would probably result in an even stingier holiday season, particularly among shoppers from higher income brackets who have watched their investments in the stock market shrivel.
As a result, even the luxury sector, the beacon of retail strength in recent years, is expected to take a hit.
McCormack and her wife recently decided not to buy gifts for each other in an effort to save money, and will slash their holiday budget to $500 from $1,500 last year. They are planning to scrimp on presents for other family members and offer free baby-sitting, car-washing, dog-sitting, and other household chores rather than buying gifts.
"With the way things are going in the economy, it makes a lot of sense, and I'm not really worried about family reaction because they're feeling the pinch, too," McCormack said.
Some analysts say a rebound in confidence may come by mid-2009, although other economists, including Joshua Shapiro, chief US economist at MFR Inc. in New York, don't expect consumer sentiment to begin bouncing back until late 2009 at the earliest.
One looming factor is job security. On Friday, the Labor Department reported that employers eliminated 159,000 jobs in September, more than double the job losses in August, making it the biggest monthly decline since 2003.
Deeper losses could follow this month as the effects of the financial crisis spread through the broader economy. Since the beginning of the year, the United States has lost jobs in each of past nine months, losing more than 750,000 positions.
Moreover, consumers who piled up debt in recent years to fuel shopping sprees they otherwise couldn't afford are feeling the squeeze as banks slash home equity lines and even credit card limits.
"All this together is a recipe for a consumer-led recession of significant proportions," Shapiro said.
David Knopf, 66, said he was cautiously optimistic about the economy during the summer, but now is nervous a turnaround might take at least two years. So Knopf, who mainly relies on his Social Security check, is cutting back on purchases, making fewer trips to Whole Foods, eating out less often, and buying cheap bookcases on Craigslist, rather than at Jordan's Furniture.
Knopf and his girlfriend are postponing travel and trips to the theater, and holding off until next year on the purchase of a Blu-ray DVD player.
On Thursday, he passed a Dairy Queen and decided not to stop and spend the $3 for ice cream.
"If you knew me," Knopf said, "you would understand what a sacrifice that was."
Jenn Abelson can be reached at firstname.lastname@example.org.