As the United States climbs out of recession, questions linger over whether the worst downturn in more than 70 years has left a permanent scar on the American psyche that will sharply constrain a recovery.
Top money managers at the Reuters Investment Summit in New York this week mulled how the evolution of a "new normal" might affect consumer spending, which in recent years has accounted for about 70 percent of U.S. economic activity.
For now, at least, the strategists sensed a new level of restraint among consumers — even those who feel relatively secure about their employment and household finances.
"The sense is, I'm not going to use my house as an ATM machine any more. I'm not going to buy things that I can't afford," said Tom Metzold, senior portfolio manager at Eaton Vance.
Metzold took a show of hands among reporters gathered for the summit: Who knows more people out of work now than a year ago? Most hands shot up.
"Every week, every time I turn around, some friend or acquaintance is losing their job. And these are people who have had the discretionary income that is so needed now" to shore up retail spending, said Metzold.
"I'm not suggesting we're going into a double-dip recession, but everything's not hunky-dory. And we're going to continue to have lower consumer spending because of the fear factor."
Attitudes toward investing have also taken a hit from the financial crisis and recession, even though a range of assets have made sizable recoveries in 2009, said Todd Harrison, the founder and chief executive officer of Minyanville Media.
"Social mood and risk appetite are what shape financial markets, and social mood at this point is tenuous," Harrison said.
Metzold and Bill Gross, manager of giant bond firm Pimco, had similar outlooks on U.S. economic growth for 2010: something around 2 percent, or a level typically not considered high enough to generate many new jobs.
Gross said U.S. job creation is poised to resume soon, but would likely run at an average of 100,000 a month in the early stages — too small to meaningfully bring down the unemployment rate.
And even though the U.S. jobless rate slipped in November to 10.0 percent from a 26-year high of 10.2 percent, many analysts guess the decline partly reflected discouraged job-seekers who have simply stopped looking.
If hiring seems poised to pick up, some of those workers could be back in the pool, possibly causing the jobless rate to rise again.
Many Americans have been cheered this year by a revival in their investment portfolios from the recession depths hit in March, helped by the sharp rise in U.S. equities that form the core of many retirement savings plans.
But Gross said stocks might struggle from here. Equities are now priced at levels that anticipate a stronger economic recovery than Pimco's baseline forecast would suggest, he said.
Diane Garnick, strategist at Invesco, said a change in consumer behavior after a recession could be correlated roughly with the depth of the downturn.
During the current recession, which started in December 2007, at one point household wealth in the United States had plummeted by about $14 trillion as home values and investments shrank.
"On the other side of a recession, people change their preferences. And the more severe the recession, the bigger the consumer's change," Garnick said.
"We're all in the age bracket where we know someone who lived through the Great Depression," she said. "If I was from that generation, this shirt would be 80 years old and I would still be wearing it because 'it's still good.'"
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