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Discover(R) U.S. Spending Monitor(SM) Rises 1.4 Points in May as High Gas and Food Prices Eat Away at Discretionary Spending

Monitor High 42 Percent of Consumers Reducing Their Savings to Help Make Ends Meet

RIVERWOODS, Ill.--(BUSINESS WIRE)--June 4, 2008--The Discover U.S. Spending Monitor rose 1.4 points in May to 86.8 as consumers braced for higher spending in the wake of record gas and food prices. The Monitor posted record high percentages of consumers who said they spent more in May than April (56 percent) and who expect to spend more next month (46 percent), both up by six points respectively. The upturns reflect a nation of consumers who are seeing spending for necessities grow and budgets for discretionary spending shrink.

The shift in spending patterns is taking place against a sour economic backdrop. Though the Monitor recorded a slight overall improvement in economic sentiment in May, the gain barely masked record-high numbers of consumers who said their finances are getting worse (54 percent) and that shortfalls in income would force cutbacks in their current lifestyle (43 percent).

The most important factor in the spending outlook appears to be the record-high price of gasoline. Last year at this time, only 23 percent of the country said they spent more than $200 a month on gasoline. This May, with gas selling at averages topping $4 a gallon in some regions, nearly 36 percent report having to spend at the $200 level or higher each month to fuel their vehicles.

The price of gasoline has caused 54 percent of the country to reduce living expenses to cope. In addition, 59 percent of consumers - including 43 percent of the country's higher-income population - are changing summer vacation plans in response to rapidly rising energy costs.

Household Expenses Eat Away at Discretionary Spending

"Summarizing a year's worth of polling on consumer spending, it seems clear that U.S. consumers are no longer choosing to spend more, but are being pressured to spend more due to record-high oil and food prices," said Margo Georgiadis, executive vice president and chief marketing officer for Discover Financial Services. "The change in patterns is most dramatic at the category level the Monitor has followed as people have shifted their spending emphasis from 'wants' to 'needs'."

In the household expense category - for needed items like gasoline and groceries - there has been a marked increase in spending expectations. In May, 65 percent of consumers anticipated higher expenses for necessities next month, a stark contrast from just three months ago when only 40 percent said they expected higher living expenses in the month ahead. The increased pressure on household expenses was felt by every income and age demographic.

Since the run-up of gas prices in March, consumers have been busy trying to adjust to the new expense reality. Discretionary spending for things like entertainment and travel is taking the biggest hit as fuel and food costs escalate. In May, a record-high 54 percent of the nation's consumers said they would spend less on discretionary items next month. That's a marked change from the period prior to the run-up of pump prices in February when only 46 percent were preparing to cut discretionary spending.

The effect of higher household-related expenses is being felt in other categories as well. For example, the number of people who say they will spend less on major personal purchases, like vacations, rose to 48 percent in May, a Monitor high and up five points over the last three months. Consumers were also cutting back on home improvement spending so they can help make ends meet. A record 49 percent said they would be investing less in their homes next month.

Perhaps most telling is the fact that 42 percent of consumers - another record high- say they are putting less into savings and investments.

"Consumers have been resilient in the wake of high energy prices, putting their money where their needs are, and cutting back on discretionary spending to balance their budgets," said Georgiadis. "But the cutbacks do not help a struggling economy, and as gas prices continue to break records, consumers are showing signs that their budgets may be stretched a little too thin."

A Monitor high 31 percent of consumers have less money left over than the previous month after paying bills

Fifty-one percent of consumers in May managed their finances to have money left over after paying the bills. While this number has been the average during the last 12 months, it is four points lower than the 55 percent reached a year ago. More telling are the numbers coming from consumers who do have money left over. Last September, a Monitor high 81 percent said they had the same or more money left over than the previous month. Now, only 68 percent say they have the same or more money left over. While still a substantial majority, this is the first time this number has been below 70 percent. Likewise, 31 percent say they have less money left over than the previous month.

Stark contrast of views about the economy, personal finances compared to a year ago

The May Monitor shows very little retreat from the economic concern that has beset consumers this year. The only glimmer of economic optimism: 12 percent now think that the economy is actually getting better, the first time the measure has been in double digits since February. The country's economic malaise is evident in year-over-year comparisons. In the benchmark Monitor survey in May 2007, 35 percent of consumers gave the U.S. economy a rating of good or excellent compared to 15 percent in May 2008. Last year at this time, 21 percent thought the economy was getting better compared to 12 percent now, and 61 percent thought things were getting worse compared to 72 percent now.

Consumers' views of their personal finances also show stark contrasts from a year ago, as a Monitor high 54 percent think their personal finances are getting worse, compared to 44 percent a year ago.

Regarding certain demographics, women remain much less optimistic about the economy than men. Seventy-nine percent of women think the economy is getting worse while only 64 percent of men think things are going downhill. Twelve percent of women rate the economy as good or excellent versus 19 percent of men.

There was another notable surge of optimism among higher-income Americans who seem to be feeling better about the economy even as they bulk up their spending. There was a 4-point decline in those in the segment who said things were getting worse and a nearly 5-point increase in those who said things are getting better, continuing a trend that started in April.

For more Discover U.S. Spending Monitor survey data and information, please visit www.discoverfinancial.com/surveys/spending.shtml.

About Discover U.S. Spending Monitor

The Discover(R) U.S. Spending Monitor(SM) is a monthly index of consumer spending intentions and capacity that is based on interviews with a random sample of 15,000 U.S. adults conducted at a rate of 500 per night. In addition to spending, the survey asks consumers their opinions on the U.S. economy and on their personal finances. Weekly reports reflect calculations for the seven previous days of interviews, or a sample of 3,500 adults. Surveys are conducted by Rasmussen Reports, an independent survey research firm (www.rasmussenreports.com).

About Discover Financial Services

Discover Financial Services (NYSE: DFS) is a leading credit card issuer and electronic payment services company with one of the most recognized brands in U.S. financial services. The company operates the Discover Card, America's cash rewards pioneer. Since its inception in 1986, the company has become one of the largest card issuers in the United States. Its payments businesses consist of the Discover Network, with millions of merchant and cash access locations, and PULSE, one of the nation's leading ATM/debit networks. For more information, visit www.discoverfinancial.com.

CONTACT: Discover Financial Services
Matthew Towson
224-405-5649

SOURCE: Discover Financial Services