Businesses across the nation, including restaurants, car dealers and discount retailers, are worried that rising geopolitical tensions could rattle consumers and further weaken an economic recovery already fraying.
Some analysts in recent days have raised the odds of a recession amid new data showing a drop in consumer confidence, disappointing retail sales and another surge in oil prices. Investors, fearing slower growth, last week sold off stocks and bought relatively safer Treasury bonds.
Energy prices, the stock market and Middle East turmoil "really have taken a grinding toll on the psyche of the American consumer," said Preston Cox, owner of Embudo Station, a restaurant about 40 miles north of Santa Fe, N.M., that has seen sales drop about 30% this year.
Peggy Lui of Pasadena said Mideast unrest, combined with higher gasoline prices and proposals in Washington to alter Social Security, have led her to trim purchases. Lui's finances are in good order -- she bought her condominium in 1999 when prices were low, traded in her car for a fuel-efficient sedan and paid down her student loans since graduating from Pepperdine University in 1989.
But the insurance claims specialist is no longer taking last-minute vacations or frivolous shopping trips, she said.
"Now you have to really think about 'How do I cushion myself and still survive,' " no matter what turn the economy takes, Lui said. "I'm still cautious about my purchases because you don't know what's going to happen."
Analysts say the latest worries are increasing the chances that the Federal Reserve and its new chairman, Ben S. Bernanke, will pause its 2-year-old program of raising interest rates at its policymaking committee's next meeting Aug. 8. Although the central bank probably is worried about the latest surge in oil prices -- blamed primarily on rising Middle East tensions -- those inflation concerns could now be trumped by worries over a slowing economy.
"It's the toughest decision our newest Fed chairman has faced," said David M. Jones, president and chief executive of Denver-based DMJ Advisors.
All economic eyes and ears will be on Bernanke on Wednesday, when he is set to give a semiannual report to Congress on the state of the economy. It will be the chairman's second such appearance, and a pivotal one, analysts say. His challenge, experts say, is to bolster consumer confidence and keep inflation under control without raising rates too much and risking a recession. The core consumer price index, a key inflation indicator that excludes volatile energy and food prices, is at 2.1%, above the Fed's target of 1% to 2%.
