by Calculated Risk on 7/26/2006 06:14:00 PM

The American Research Group has a recent poll on the economy. Here are a few key numbers:

57% say the national economy is getting worse

47% of Americans say their personal financial situations are getting worse

38% of Americans say they believe that the national economy is in a recession

Click on graph for larger image.

We need to be cautious with these results; some academic research has shown that there is very little predictive power in this type of poll. Dr. Dean Croushore said:

"... consumer confidence just reflects the past. You lose your job, your confidence falls. There's not really anything new there. What we really want are indicators that look forward."

My guess is those that think the economy will be worse next year are just reflecting current difficulties, primarily gas prices. As an example, when gas prices spiked last year after the hurricanes, those expecting a worse economy in 2006 also increased.

But look at those thinking the economy will improve next year. Only 5% of those polled!

I think this shows consumer psychology is changing. This isn't a "contrary indicator" - growing pessimism leads to consumers pulling back on their spending, and it can become a self-fulfilling prophecy.

Something needs to change or we may see a recession. Maybe gas prices will fall, or real wages start to rise, but clearly the weakening economy is impacting the economic outlook of Americans.