All of us feel the economic heat

Barely a week into the new year and already a spate of surveys and reports reveal that most Americans -- including Federal Reserve Board members -- believe that the economy will get much worse this year and may not see any signs of improvement until 2010. That is leading a vast majority of consumers to put off spending on everything from health care and clothing to restaurant meals and vacations. It's also prompting an uncomfortable and growing number of people to pull money out of retirement and other savings funds as they resign themselves to more years in the work force.

"Anxiety has been the operating phrase," said David Certner, legislative policy director at AARP, which found in a study released Tuesday that an overwhelming majority of Americans 45 years and older think the economy is in dire straits.

That's not limited to those who live paycheck to paycheck either. A record 80% of millionaires polled in another survey published Tuesday said this is the worst financial crisis they have ever experienced. Nearly 50% of them said their shrinking net worth is prompting them to change short-term spending habits.

"More than anything else we saw in focus groups was anger," said Catherine McBreen, managing director of Spectrem Group, a Chicago-based research and consulting firm that surveyed consumers with a net worth of $1 million or more. "People were really mad. Most of them have lost 30% to 40% of their net worth and they blame the government and Wall Street."

Many of them are near panic mode as well, McBreen said, reflecting the fears of most Americans. In the AARP survey, more than nine in 10 Americans described the economy as very or fairly bad, a 10 percentage point increase since a similar survey in April.

Fifty-two percent of those polled by AARP said they were having a tough time paying for such essentials as food, gas and medicine while 44% said money was too tight to cover utilities like heating, cooling and phone service. A quarter admitted they were finding it more difficult to pay the mortgage or rent while 23% conceded they put off paying some bills altogether.

Investment losses have more than 57% of adults 45 years and older expecting to put off retirement to recoup the shortfalls. In fact, one in four said they already have postponed plans to retire while 28% said they worked longer hours over the last year out of necessity.

The wealthy share some pain

Though the millionaires didn't appear worried about keeping the heat or the lights on, 55% of them feared they wouldn't have enough assets to maintain their lifestyles for the rest of their lives. Forty-seven percent believe this slump will cloud the economy for almost two more years.

"I think this is more than a downturn," one respondent said. "There is so much snowballing everywhere."

These attitudes either reflect or are a consequence of what the Federal Reserve has been thinking and seeing as well. In the minutes of last month's interest-rate change to near zero, Fed officials expressed concern that the recession could be longer and deeper than initially expected. See full story.

"The overwhelming message gleaned from the minutes of the meeting is one of fear -- fear of a deep recession, and fear of a debilitating deflationary spiral that would capsize a debt-laden economy," MFR Inc.'s chief economist Joshua Shapiro wrote in a reaction to the minutes.

That has millionaires -- generally a fiscally conservative bunch, according to McBreen -- making changes that in many ways mirror those polled by AARP. Spectrem surveyed 750 millionaires online and held focus groups in Chicago, Los Angeles, New York, Palm Beach and Seattle.

"In the focus groups most said they were holding back on spending until things settled down," McBreen said. They were cutting back on dining out -- instead of going out three times a week to fancy restaurants they will only go out once a week to a nice restaurant. Also they are trimming their purchases of luxury items like watches and second homes, vacations and even clothes.

"One woman said that as you get older you don't need as many clothes anyway," McBreen said.

Dining, entertainment, retirement cutbacks

Among AARP respondents, 68% have cut back on entertainment spending while 64% said they stuck to eating at home more often. One of three middle-age and older Americans said they have stopped putting money into retirement accounts like their 401(k)s or IRAs. About 17% said they have prematurely withdrawn funds from a retirement accounts over the last year.

Among the most surprising results from AARP's survey was the number of people who felt the government should step in.

"There's pretty significant anger toward Wall Street and there was some anger in terms of some of the bailout for Wall Street," Certner said.

"But if anything more people are looking to the government to help and they're more open to government solutions," he added. Eighty-three percent, for example, believe the government should take action to help people facing prolonged joblessness and other challenges such as foreclosure or loss of health insurance.

"People are seeing that these problems are so big now that it's hard to be handled by anyone but the federal government," Certner said.