Consumer sentiment fell in March to a year low on job worries and uncertainty about the future, according to the IBD/TIPP Economic Optimism Index out Tuesday.
The gauge dropped 1.4 points from February to 45.4, the lowest since March 2009 and just 1 point above the level in December 2007, when the recession began.
Readings below 50 signal pessimism. The six-month outlook sank 2.3 points to 46.4, also a year low.
The economy grew at a 5.9% annual rate in Q4, largely on companies paring inventories at a slower pace. But many economists expect Q1 growth to slow amid a raft of weaker-than-expected data and tight credit. Meanwhile, job losses have continued.
"You're having a situation where the economic horizon is not very clear," said Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence, IBD's polling partner.
Morose, But At The Mall
Yet Americans keep spending despite the gloom. February same-store sales climbed 4.1% vs. a year earlier, the best in more than two years even amid heavy snowstorms. The S&P Retail Index has risen to its highest level since November 2007.
There's only a loose correlation between confidence and spending, economists note. Discounts, government stimulus and signs that the job market is stabilizing have helped prop up spending.
"At least the people who still have jobs are probably less fearful of losing their jobs than they were a year ago" and are therefore more willing to increase their spending, said Nigel Gault, U.S. research director at IHS Global Insight.
Employers shed a fewer-than-expected 36,000 jobs in February, and unemployment held at 9.7%. Many economists expect modest job growth to resume in March, but the jobless rate will likely stay stubbornly high and make for a slower-than-usual recovery in cons umer confidence and spending.
IBD/TIPP's personal financial outlook, which gauges Americans' views about their finances six months out, fell 2.8 points to 50.7, well below the 60 level that's typical in good times. It was the lowest since the February 2009 bottom.
Confidence was weakest in the South and in the Midwest, where financial distress is highest, especially among the less educated. "The job situation squeezes them much more," Mayur said.
Meanwhile, an index of small-business optimism fell 1.3 points in February to 88, just 7 points above the March 2009 low of 81, the National Federation of Independent Business said Tuesday.
Uncertainty about the cost of health care reform and other initiatives are main factors "in small-business owners not expecting business conditions to improve," William Dunkelberg, NFIB's chief economist, said in a prepared statement.
Small businesses, the main drivers of job growth, continue to shed employees, the survey found.
Inventories are shrinking as firms bring stocks in line with sales, and credit remains tight. A net 9% expect the economy to worsen over the next six months vs. the net 1% in January that thought it would improve.
In the IBD/TIPP survey, the index of confidence in federal economic policies rose 0.9 point to a still-woeful 39.2. Democrats and independents were more upbeat; Republicans were slightly more critical.
Americans still disapprove of how Obama has handled the economy, 44%-31%. Independents are upset by 2-to-1 — rising to 6-to-1 among those with strong opinions.
The IBD/TIPP Presidential Leadership Index dipped 0.2 point to the neutral 50 level in February. The rating has steadily declined from a reading of 71 in February 2009, just after Obama took office. In addition to the economy, Americans are dissatisfied with Obama's performance on the budget and health care.
IBD/TIPP conducted the national telephone poll of 903 adults from March 1 to 7.