Consumers’ Fear Hurt Economy

Once upon a time, talk of recession was the only thing consumers concerned themselves with, but all of that’s changed since Sept. 11. In fact, fear about personal safety is the biggest restraint on economic recovery, researchers at the University of Michigan concluded Tuesday after a special survey of consumer attitudes.

The researchers, who produce the twice-monthly indexes of consumer sentiment, said consumers who are the most fearful for their own personal safety are more pessimistic about the economy, their jobs and the investment climate. About 20% of consumers say their personal sense of safety has been shaken a great deal and 29% say it’s been shaken a good amount. Fifty-one percent say their sense of safety hasn’t been affected much.

The results are similar to a recent Gallup Poll, that showed 24% of Americans are “very worried” that they or a loved one will be a victim of terrorism and 35% are “somewhat worried.”

“Unlike other assessments of economic risks, these fears represent a significant threat to the usual functioning of the economy,” said Richard Curtin, director of the Institute for Social Research at the university. “Restoring consumer confidence becomes more than just a matter of economic stimulus,” Mr. Curtin said. “A renewal in confidence may also require the restoration of a sense of personal safety.”

Just 15% of consumers said they’d spend the money if Congress approves an additional tax rebate. The $40 billion tax rebate program approved in early summer hasn’t had the traction policymakers expected largely because consumers seem to have used it to pay down debts or to increase their savings.

In the long run, increasing savings is vital to the economy, but in the short run, the weak economy needs more consumer demand.

Mr. Curtin found a strong correlation between fears about safety and concerns about the economy. Among those who most fearful, the consumer sentiment index was 62.4, but among those unaffected by the attacks, the index was 84.7.

About half of consumers say it’s a good time to invest in the stock market and about two-thirds of consumers who make more than $250,000 a year are bullish. However, among those most fearful, only 32% say it’s a good time to buy.

The most fearful consumers are also less likely to have plans to buy durable goods and are more likely to think the unemployment rate will worsen.

Consumer sentiment had been plunging even before the Sept. 11 attacks. The index measured 83.6 in early September, the lowest in eight years after peaking at 112 in early 2000. Researchers said the index rose the first week after the attack in a surge of patriotism.