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Oil weighs heavy on outlook

Only 19% surveyed see an upturn in the economy within the next six months.

May 14, 2008|Tom Petruno | Times Staff Writer

Most Americans see little hope that the economy will improve in the next six months, and many also are decidedly pessimistic about the direction of oil prices and inflation, according to a new Los Angeles Times/Bloomberg poll.

The views on inflation could become troublesome for the Federal Reserve: If more Americans believe that inflation will worsen there is a risk of those expectations becoming self-fulfilling.

The nationwide telephone poll of 2,208 adults, conducted May 1 to 8, found that just 19% of all respondents expected the economy to be in better shape in six months, while 37% expected it to be worse and 40% expected it to be about the same.

The Bush administration has been counting on tax rebates being sent to 130 million households starting this month to help boost consumers' spirits -- and their spending.

But 45-year-old Joan Danley, a poll respondent who works in an electric-motor manufacturing plant in Cassville, Mo., said she couldn't see a reason to be optimistic amid recent cutbacks by her company.

"We started having layoffs last fall," Danley said. "It seems a lot of jobs are going to China and to Mexico."

Her rebate check, she said, will just "put gas in my tank." Apart from spending more on gasoline, Danley said, "I'm not buying like I used to."

The poll found that a downbeat view of the economy's prospects in the next six months was highest among people 35 to 64 years old, while younger and older people were less negative.

In the 35-to-44 age group, 47% expected things to get worse, and that was the view of 40% of those in the 45-to-64 age group.

By contrast, 32% of respondents in the 18-to-34 group and 35% of those in the 65-to-74 group expected conditions to worsen in the next six months.

John Kelemen, a retired postal worker in Tempe, Ariz., said he believed that the weak economy and soaring energy and food prices were widening the gulf between rich and poor.

"I think it's going to get to the point where something is going to have to be done" about income disparities, the 61-year-old Kelemen said.

The poll results suggested that record energy prices were taking a heavy toll on Americans' confidence in the future.

In a question about the greatest threats to U.S. prosperity over the next five years, oil garnered the most votes by far across all demographics. Either the high price of crude or U.S. dependence on foreign suppliers, or both, were mentioned by 30% of all respondents. No other issue came close. War and defense spending were named by 11% of respondents as the greatest threat to U.S. prosperity; the home-foreclosure crisis was named by 5%.

Asked where they expected oil prices to be in one year, compared with the price of about $119 a barrel at the time of the survey, 67% of all respondents said they expected the cost to be higher. Just 14% predicted a lower price and 14% said they expected the price to be "about the same."

On Tuesday, crude oil futures in New York closed just shy of $126 a barrel.

Worries about oil may be driving concerns about overall inflation: 61% of respondents said they expected inflation to rise over the next year from the current annualized rate of about 4%. Just 11% expected inflation to be lower, and 23% said they expected the rate to be about the same.

Inflation "just seems to be going up, but my husband's paycheck stays the same," said 57-year-old Mary Murrow of Wichita, Kan.

The Federal Reserve cut its benchmark short-term interest rate to 2% April 30 from 2.25%, the seventh reduction since September, as policymakers have tried to ease the housing-centered credit crunch and bolster the weak economy. But the Fed hinted that the latest cut could be its last.

The central bank is concerned that its rate reductions could help fuel inflation pressures, and that an inflation mentality could take hold among consumers, altering their behavior -- for example, by encouraging them to buy goods they believe will only become more expensive. That could make higher prices self-fulfilling.

"That's an issue out there," said Gary Schlossberg, an economist at Wells Capital Management in San Francisco, noting recent episodes of rice hoarding by customers of some U.S. retailers. What's more, he said, although global competition has kept U.S. prices relatively restrained apart from the food and energy sectors, that could change if the cost of imported goods continues to rise, giving American companies less reason to hold the line on their own prices.

The Fed warned in its post-meeting statement April 30 that "some indicators of inflation expectations have risen in recent months" and that "uncertainty about the inflation outlook remains high."

The Times/Bloomberg poll, conducted under the supervision of Times poll director Susan Pinkus, has a margin of sampling error of plus or minus 3 percentage points.




Price of oil, inflation expectations

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