Confidence among consumers and small businesses both sank to their lowest levels since July as high unemployment fueled concerns about consumer spending heading into the holidays, according to separate surveys Tuesday.
The IBD/TIPP Economic Optimism Index fell 2.3% in December to 46.8, its third straight drop. Readings below 50 signal gloom.
"High unemployment is not helping," said Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence, IBD's polling partner.
Respondents' view of their own finances climbed 2.1% to 53.6. But the six-month outlook fell 5.1% to 46.7, a five-month low.
About one-third of respondents were polled after Friday's Labor Department report showing unemployment falling to 10% in November. But they gave similar responses to those queried earlier.
Meanwhile, the number of job openings fell by 80,000 in October to 2.51 million, Labor said Tuesday. That bodes ill for the more than 15 million who are unemployed.
Confidence in federal economic policies sank 4.3% to 40.2, the lowest since Obama took office, said IBD/TIPP. Just 35% of Americans give him good marks on the economy vs. 40% who disapprove.
President Obama on Tuesday said we must continue to "spend our way out of this recession," announcing a variety of proposals to spur hiring. They include weatherizing homes and cutting small businesses' capital gains taxes. Democratic leaders in Congress are mulling more costly plans with an eye to the 2010 midterm elections.
Also Tuesday, the National Federation of Independent Business said its sentiment gauge fell 0.8 point in November to 88.3, a four-month low. Small-business owners trimmed hiring and capital spending plans as their economic outlook weakened.
"The biggest problem continues to be a shortage of customers," NFIB Chief Economist William Dunkelberg said in a statement. "The legislative agenda in Washington is a major factor blunting consumer and owner optimism."
Big-company executives seem more optimistic: The Business Roundtable's CEO Economic Outlook index jumped to 71.5 in Q4 from 44.9 in Q3, soaring above the neutral 50 to its best level since Q3 2008. But they still plan to cut staff.
Economists note that hiring tends to lag the business cycle, which has turned up on stronger exports, home sales, corporate profits and factory activity.
"I don't think there's anything to be gloomy about," said Craig Thomas, an economist at PNC Financial. "It's an incredibly broad and substantial foundation on which to build a recovery."
But he acknowledged risks that the recovery could slow when massive government and Federal Reserve stimulus wanes next year.
"There's a lack of clarity as to what the world is going to look like a year from now," he said.
Meanwhile, Fitch cut Greece's sovereign debt rating. Moody's said the U.S. and U.K. could lose their AAA scores unless they cut their deficits. Moody's also cut several Dubai-owned companies.
The S&P 500 and Dow fell 1%. The Nasdaq lost 0.8%. Treasury yields and gold fell as risk-averse investors bought dollars.