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Discover(R) U.S. Spending Monitor(SM) Flat in July

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