THE TIMES POLL : Many to Cut Spending as Hedge for Recession

California residents are bracing for a recession by trimming spending plans for new cars, vacations, Christmas gifts and restaurant meals, The Los Angeles Times Poll has found, a behavior pattern that could intensify the current economic slump.

Optimism about the California economy has been giving way to financial jitters since last year, the survey shows. Majorities of the rich and poor, men and women, residents of Southern California and the Bay Area all expect a recession within the next year.

Still, Californians retain more faith in their state’s economy than in the nation’s overall, which a majority says already has entered a recession.

“California is a great place to build a business and to live and for jobs,” said John Rutledge, chairman of the Claremont Economics Institute, a private firm. “But we’re treading water for a while.”

Many of those interviewed, however, said the economy was sinking rather than treading water, both at the state and national levels.

Almost three-quarters said the United States would suffer a recession by next year, with just more than half responding that a downturn was in progress now. At home, the view was better, but only by a little: Two out of three said California would tumble into a recession by next year; two out of five said the downturn had arrived already.

The findings seem to highlight a stark reality: For all its economic strength, the Golden State cannot shield itself from the economic forces that are buffeting the national economy.

“California is a microcosm of the United States,” said David G. Hensley, a UCLA economic forecaster. “The factors that would push the United States into a recession would push California into a recession. . . . I think it’s going to be a rough ride for everybody.”

The Times’ telephone survey of 2,564 Californians was conducted between Oct. 19 and Oct. 24, a time when the federal budget crisis appeared to be reaching a peak. The findings are considered accurate to within 3 percentage points. The survey was supervised by Susan Pinkus, assistant Times Poll director.

The poll also underscored the political controversy surrounding tax increases. Even as politicians in Washington were crafting a tax-increase plan last week, six out of 10 respondents said they opposed increasing taxes to cut the deficit.

Yet few Californians seem to blame President Bush for the nation’s economic malaise; only 7% cited him as the source. Rather, Congress emerged as the villain. More than one in four respondents faulted the legislative branch for the country’s economic ills. Oil prices were cited by 13% and “corporations living on borrowed money” by 12% as other causes of America’s economic difficulties.

“People don’t think he (Bush) created the economic recession. They believe Congress is far more responsible,” said William Schneider, a scholar at the American Enterprise Institute and a political analyst for The Times. “But that doesn’t mean he’s not getting blamed for something.”

The “something” may be a lack of leadership in the budget process and a failure adequately to explain the reason for higher taxes, Schneider suggested. Bush’s popularity has fallen sharply in recent weeks, according to national polls.

In California, optimism about economic prosperity also has fallen. Just a year ago, 37% rated the California economy as in strong shape. By last week, however, the figure had shrunk by more than half. Asked to rate the state’s economy, a majority of those polled described it as somewhere between good and bad, with more leaning to a negative view.

“Because of the Middle East tension and rising gas prices and rising taxes, the poll is reflecting a very deep sense of foreboding by the average family,” said Joseph A. Wahed, chief economist at Wells Fargo Bank in San Francisco. “I’m not surprised at all by the results.”

The findings were generally consistent throughout the state, although views about the economy varied a little among regions.

Orange County residents were least likely to describe California as in bad shape today. Elsewhere in Southern California, residents took a slightly gloomier view. People in the Central Valley were expecting the longest economic slump, with one in three saying it would last more than 18 months. Just one in five Orange County residents said the downturn would last that long.

More than two out of five Los Angeles respondents said the recession already had started; the figure was slightly lower in other regions, but often close enough to be within statistical margins of error. Findings in the Bay Area and Los Angeles were similar for various questions.

A recession is generally defined as a period of six consecutive months in which the economy is in decline. In such a slump, unemployment rises, wage gains are sharply restricted and business profits suffer. But respondents to the survey may have had a less technical definition in mind.

Over the years, California’s economic diversity has been an insurance policy against hard times, limiting the ripple effects caused by a downturn in any one industry. Yet national problems involving savings and loans, commercial banks, real estate, construction and the cost of energy appear to be taking a toll.

“Southern California will not escape the recession,” predicted Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto.

Certainly, economic anxiety is spreading, a factor that could prove significant in the coming months.

Six in 10 of those surveyed said they expected to postpone, cancel or reduce spending due to economic fears. These spending cuts would ricochet through the economy, hurting a range of retailers, service providers and, ultimately, manufacturers.

Almost one-third of those interviewed cited plans to scale back vacations, for example. Car purchases and dining out also were cited by one in three as targets for cuts.

By slightly smaller margins, consumers said they would scale back plans to buy Christmas presents (27%), homes (26%) and major appliances (22%).

Such attitudes are considered important, because consumer spending amounts to two-thirds of U.S. economic activity. When people opt to protect themselves by hanging onto their dollars--as they do in times of rising unemployment--their actions can further weaken the economy. Analysts sometimes describe this scenario as a self-fulfilling recession.

“For every guy that actually gets laid off, there probably are 20 guys who are scared,” said Rutledge, the Claremont economist, noting the widespread concern in Southern California about layoffs in the defense industry. “And those guys aren’t buying sofas and tables. They’re probably building a little cushion of savings.”

The California findings fit in with national data that highlight an extraordinary wariness by consumers since the onset of the Persian Gulf crisis. Consumer confidence has plunged to its lowest level in eight years, the Conference Board, a business research group, said last week.

“Any further curtailment in spending could readily push us into a full recession,” warned Fabian Linden, executive director of the board’s Consumer Research Center in New York, which surveys 5,000 households a month.

While economic wariness runs deep, there also are some notable differences within the California public, The Times Poll shows.

Just over one woman in 10 gives the state economy good grades, for example. Twice as many men rated the economy highly.

Members of different population groups also have disparate opinions on whether the state is now gripped by a recession. Among women, 45% said the state is in such a slump. Of the men surveyed, just 37% shared that opinion.

A gender gap also appeared in the public’s view of how long the slump would persist. About 29% of women said it would last for more than 18 months. Only 23% of men said it would last that long.

Blacks and Latinos take a substantially dimmer view of the California economy than Anglos do. Two out of five Anglos agreed that a recession had arrived. Blacks were more pessimistic, with one out of two saying that was the case. Latinos were slightly more optimistic than blacks, but more pessimistic than Anglos.

Similarly, just 24% of Anglos said the recession would last longer than 18 months. For blacks, it was 39%; for Latinos the figure was 31%. Asked to rate the financial strength of the “head of your household,” almost half of Anglos said it was good. By contrast, fewer than a third of blacks and Latinos described their household finances as “good.”

Despite such differences, the survey showed that economic worries are cutting across much of the population. While Latinos seemed most inclined to tighten their budgets--with three out of four declaring they planned to do so--majorities of blacks and Anglos planned to cut back, too.

“There is a real negative psychology at this stage,” said Wahed of Wells Fargo. “I don’t think it will last forever. It will change as business conditions change and the Middle East crisis is resolved.”

TIMES POLL: ASSESSING THE ECONOMY

The Los Angeles Times Poll interviewed 2,564 respondents in California, asking about their plans for coping with the economic slowdown and their assessment of the depths of the problems facing the state and national economies.

Do you expect to postpone, cancel, or reduce spending on any of the following purchases because of the economic situation in the country: a home, car, Christmas presents, major appliances, a vacation, dining out and entertainment or some other item?

Male Female Anglo Black Latino All Expect no changes 40% 34% 42% 31% 21% 37% Expect to change 58% 63% 56% 67% 74% 61% spending plans

Will change plans regarding spending on... Male Female Anglo Black Latino All House 26% 27% 25% 30% 33% 33% 27% Car 29% 33% 29% 36% 35% 31% Christmas presents 23% 32% 26% 32% 31% 28% Major appliances 21% 23% 21% 27% 25% 22% Vacation 29% 35% 31% 35% 37% 32% Dining & entertainment 29% 34% 31% 34% 34% 32% Other 4% 6% 5% 5% 7% 5% Don’t know 2% 3% 2% 2% 5% 2%

Note: Totals add to more than 100% due to multiple responses

Is the United States now in a recession?

In a recession now: 51%

In a recession within a year: 21%

Not in a recession now or within a year: 17%

Don’t know: 11%

Is California now in a recession?

In a recession now: 41%

In a recession within a year: 22%

Not in a recession now or within a year: 24%

Don’t know: 13%

Source: Los Angeles Times Poll