Consumers Continue to Pull Back on Discretionary Spending; Cut
Major Purchases First in the Wake of Decreasing Home and Asset Values
RIVERWOODS, Ill.--(BUSINESS WIRE)--Aug. 7, 2008--The Discover U.S.
Spending Monitor was virtually flat in July, rising just one-tenth of
a point to 86.1, as a rise in economic confidence among consumers
during the last week of July kept the Monitor from falling to a new
low. Despite the late rise in economic confidence, the Monitor had
record numbers of consumers who rated the economy as poor, and who
felt their personal finances were getting worse.
The pessimism comes as consumers have dealt with record-high gas
and food prices. Even with oil prices declining significantly during
the latter half of July, the drop did not result in less spending from
consumers. It only appears to have temporarily halted an increase of
spending from consumers in the coming month, as had been the pattern
previously.
Declining home and asset values also has affected consumer
spending behavior, according to the July Monitor, and may be
contributing to the pessimistic views a majority of consumers have
toward their personal finances. Adding these factors to high gas and
food prices, consumers continue to be cautious with their spending,
lending little help to the weak economy.
Consumers Continue to Trim Discretionary Spending, Major Purchases
Cut First in the Wake of Decreasing Home and Asset Values
Eighty-four percent of consumers spent the same or more in July as
they did in June and 83 percent expect to spend the same or more in
August. These numbers remained virtually unchanged from last month's
Monitor, and remain at or near record highs.
Consumers also showed little change in their attitudes toward
discretionary spending in July. While there was a 2.5-point drop in
the number of consumers expecting to spend more on household expenses
like gas and groceries, the drop did not correlate with a rise in
discretionary spending. In fact, consumers continued their cutbacks in
July on discretionary entertainment purchases, home improvement
purchases, major personal purchases and savings and investment
purchases with the number of consumers spending the same or less
remaining the same as last month.
The drop in oil prices didn't spur consumers to spend more on
entertainment and vacation expenses. More than 69 percent have cut
back on entertainment expenses and 62 percent have changed their
vacation plans, both Monitor highs.
Furthermore, the Monitor revealed for the first time that
declining home values and investment portfolios are affecting consumer
spending. Nearly 50 percent of consumers who expressed concern over
decreasing home values said they've reduced spending. And 52 percent
of consumers concerned over decreasing investment portfolios also cut
back on their spending. Major purchases like a new car, vacations,
computers or appliances were the first spending area to cut by
consumers concerned about decreasing home values (42%) and decreasing
investment assets (41%).
"While the Monitor has shown the effect that rising energy and
food prices can have on the economic and spending confidence of
consumers, we are now learning that decreasing home and asset values
may weigh just as heavily on their confidence," said Margo Georgiadis,
executive vice president and chief marketing officer for Discover
Financial Services. "Consumers are facing a headwind from several
directions, since it is unlikely that gas prices will return to last
year's levels, home values are still declining and the stock market
has been bearish."
Despite Higher Spending, Consumers Still Have Money Left Over
A bright spot in this month's Monitor was that for the sixth
straight month, the number of consumers who say they have money left
over after paying monthly bills has inched upwards. A clear majority,
nearly 53 percent, say they have a cushion at month's end. Of those
who do have money left over, 29 percent reported having less money
left over than the previous month. That's an improvement of two points
over last month's totals.
The improving numbers may have to do with the fact that there was
a 1-point drop (42 percent) in July in the number of consumers
expecting an added expense or income shortfall over the next 30 days.
This is the first time this number has gone down in six months.
"As more people begin to eke out a few extra dollars each month
after paying their bills, it will be interesting to see whether that
translates into more confidence in the economy, and especially
personal finances," said Georgiadis. "With so much uncertainty and bad
news about the economy, it's no wonder people have remained cautious
with their spending."
Consumer Views on the Economy Continue to Trend Downward, More
Than Half Think Finances are Getting Worse
While the last week of July showed a significant increase in the
number of consumers rating the economy as good or excellent, it was
not enough to offset the record number of consumers who rated the
economy as poor for the month. Overall, 54 percent give the economy a
poor mark, slightly higher than last month. However, there was a
1-point drop to 73 percent in the number of consumers who felt the
economy was getting worse.
Sagging economic confidence and higher expenditures has resulted
in declining optimism about personal finances. While the number of
consumers who rate their personal finances as good or excellent has
consistently stayed between 38 and 40 percent over the last six
months, the number of consumers who feel their personal finances are
getting worse has steadily increased. A Monitor high, 55 percent feel
their personal finances are getting worse.
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; PULSE,
one of the nation's leading ATM/debit networks; and Diners Club
International, a global payments network with acceptance in 185
countries and territories. For more information, visit
www.discoverfinancial.com.
CONTACT: Discover Financial Services
Matthew Towson, 224-405-5649
matthewtowson@discover.com
SOURCE: Discover Financial Services
