Melinda Watson's New Year's resolution: Spend less. She has always been frugal, but now she's very worried about the economy.
Her family cut back on holiday presents. They're traveling less and eating in more. And the Baltimore resident, a 52-year-old homemaker, is in school studying nursing to land a recession-proof job.
"We feel like we've really been conscientious about saving and planning, and in spite of that, we're feeling like we're going to have trouble keeping our heads above water," said Watson, who is concerned about retirement, health care costs in particular.
"I see more poverty and more need than ever before as well, and that's very sad," she said.
Many others are worried, too. More than half of Maryland residents polled by The Sun last week said they believe the state's economy is deteriorating. Only 7 percent of the 904 voters polled think it's improving. The survey has a margin of error of 3.5 percentage points.
Sharply rising costs for food and energy last year helped fuel the biggest jump in inflation since the recessionary year of 1990, the federal government said yesterday.
That means higher prices for consumers on top of rising taxes. Add markedly slowing U.S. job creation, slumping home sales, climbing foreclosures, defaults on subprime loans and a wildly fluctuating stock market, and it's not hard to see why people are feeling pessimistic.
One consequence: Consumer spending, the economy's biggest prop, is buckling. Last month retail sales fell 0.4 percent, making the holiday shopping season the worst in five years.
Rising costs are hitting local businesses, too, and they can't fully pass those expenses on to their increasingly penny-pinching customers.
Lutherville-based Stone Mill Bakery, which supplies wholesale bread to 150 hotels and restaurants, is facing skyrocketing prices for wheat. The bakery's flour costs have doubled, from $7 for a 50-pound bag to more than $14, said co-owner Alfred Himmelrich. But he has raised bread prices only 15 percent.
Even so, a restaurant chain just drastically cut its account with Stone Mill to switch to cheaper frozen bread, he said.
"If you talk to anyone in the food business, they're going to give you the same spiel," he said by phone from his Lutherville cafe during the lunch rush. The increasing cost of wheat and other ingredients "is at levels we've never seen, and it doesn't seem to stop."
Cost of fuel
Fuel costs are another concern. The House Downtown, a furniture boutique, gets many shipments from California suppliers, but owner Stephanie Gamble said soaring freight costs have forced her to look closer to home.
"The delivery surcharges are really high," said Gamble, who has stores in Baltimore and Havre de Grace. "I have been actively looking for East Coast replacements."
There have been mutterings about "stagflation," when soaring prices are coupled with little or no economic growth. That was the country's problem in the 1970s. Economist Barry Ritholtz says it's not nearly that stark now - inflation's not that bad and growth is better - but he thinks the chances of a recession this year are very high.
Expect job losses
Ritholtz, chief executive of FusionIQ, an asset management and quantitative research firm in New York, believes it will be more severe than the mild recession of 2001, when recovery was "artificially driven" by the housing boom, he said.
"This is likely to be a classic recession, and the bad news is people lose their jobs," Ritholtz said.
Not everyone is wringing their hands over the future. James Cummings, a retired Social Security Administration analyst from Towson, was among the minority of voters polled who said the economy in Maryland is doing better. He points to the tens of thousands of jobs the state has estimated will come here in the next several years under the federal government's military base realignment process, known as BRAC.
"The demand for services is going to skyrocket," said Cummings, 73.
He said he's comfortable in retirement, with plenty of investments to supplement his pension.
The possibility of an uncomfortable retirement is a key anxiety for those who don't think the economy is doing well.
Esther Purnell, a state worker in downtown Baltimore, said she put off retiring last year in part to be able to keep up with the higher costs of maintaining and repairing the house she has owned for 40 years near Hampden.
"Things are ugly," said Purnell, a widow and mother of three grown sons. "Everything goes up but your paycheck. I'm just glad I have a job."
Double-digit increases in electricity rates also weigh on consumers' minds.
Rose Cherry of Lanham sees the $240 BGE bill for her three-bedroom bungalow as evidence of a bad economy. Cherry, 77, a retired district manager for World Book Encyclopedia, said the increases in her Social Security payments aren't keeping pace with the real rise in costs.
"They just give you maybe $10 or $12 a paycheck," she said. "They don't give you enough for it to make a difference."
When Americans have to spend more on necessities - and therefore less on frills - or want to save more because they see rainy days on the horizon, it has a ripple effect. Businesses will be leery of adding jobs or raising wages, said Ritholtz, the economist.
"If perception is reality, right now it's pretty bleak," said Keith Losoya, executive director of the Chesapeake Sustainable Business Alliance in Baltimore, whose retail and restaurant members had a disappointing holiday season.
Watson, who spent less during the holidays, can't say she's sorry she cut back: "The bills just came in from Christmas, and I've got to say, they were significantly lower than last year - and that made me feel pretty good."
Sun reporter Lorraine Mirabella contributed to this article.