Consumer Confidence In Personal Finances Remains Steady

September 6, 2007

But More Consumers Feel Economic Conditions are Getting Worse New Spending Category Questions Introduced in the August Discover Consumer Spending Confidence Monitor

RIVERWOODS, Ill., Sep 06, 2007 (BUSINESS WIRE) -- In a month of roller coaster-like changes in economic confidence, consumers gave their personal finances remarkably consistent ratings, according to the August Discover(R) Consumer Spending Confidence Monitor(SM). The Monitor fell 2.4 points to 94.8 for the month as the number of consumers who said the economy was worsening increased from 58 percent to 62 percent. Yet 41 percent of the same random sample of 15,000 U.S. adults also rated their personal finances as good or excellent, virtually unchanged from July and within a percent of the Monitor baseline established in May of this year.

Consumer confidence in the U.S. economy rose and fell week to week during this month as concerns about the housing market and sub-prime mortgage challenges led the business news. The Monitor hit a high of 96.8 the week ending August 8 and a low of 92.5 for the week ending August 15. The Monitor stood at 94.5 for the last week of the month. Through it all, consumers remained relatively upbeat about their personal finances, rating them much higher than they rated the economy.

Personal Finance Confidence Remains Stable, Majority Have Money Left Over, But Consumers are Growing More Concerned About the Economy

Consumers' views about their personal finances virtually mirrored last month's survey as 41 percent rated their personal finances as good or excellent. The relatively upbeat view from consumers about their current personal finances comes as nearly 51 percent of them said they were managing their budgets well enough to have money left over. This is unchanged from last month's survey. Of those who had money left over after paying the bills, nearly 78 percent think they will have the same or more money left over next month.

But consumers are growing more concerned about the economy. Sixty-five percent rated the economy as fair or poor, a 3-point increase from last month's survey. Only 33 percent rated the economy good or excellent, a 2.5- point drop from July. Consumers also feel economic conditions are getting worse. Sixty-two percent feel the economy is getting worse, the highest percentage the Monitor has reported since its May inception. Only 19 percent feel the economy is getting better, the lowest number the Monitor has reported. Sixty-six percent of married people with children feel the economy is getting worse, 4 points higher than the average.

The pessimistic view by consumers on the economy is coupled by more consumers feeling that their personal finances are getting worse. Forty-three percent feel they are getting worse, reversing a decline from June to July, while only 31 percent of consumers feel their personal finances are getting better.

"Most consumers still feel relatively upbeat about their current personal financial status. With a majority of them having money left over after paying the monthly bills, this may be why consumers sustained their spending throughout August," said Margo Georgiadis, Executive Vice President and Chief Marketing Officer for Discover Financial Services. "But declining confidence about whether their personal finances will get better as well as growing concerns about the economy, especially among married people with children, may be an indicator that consumers might tighten their wallets next month."

Majority of Consumers Maintaining Their Spending Confidence, Numbers Increase Among Consumers Expressing Spending Caution in the Month Ahead

The outlook on the economy didn't appear to slow spending in August as 84 percent of consumers said they spent the same or more than they did last month and 82 percent are expecting to spend the same or more next month.

While a large majority expressed confidence in maintaining their spending, there were some signs of caution. Just over 30 percent (30.3 percent) of consumers are expecting to spend more in the next month. This represents a 25 percent drop since the Monitor's inception four months ago. Sixteen percent of consumers also are expecting to spend less next month; a 2.5- point increase from July's Monitor and the highest percentage the Monitor has reported.

"Consumer spending confidence has not dissipated considerably from the previous month," said Georgiadis. "Nonetheless, we have seen a noticeable decline since the Monitor's inception in the amount of people expecting to spend more in the next month. Economic uncertainty inspires caution and more consumers may be acting on that instinct."

Still, nearly half (49 percent) of consumers said they did not expect any added expenses or an income shortfall to curtail their spending in the next 30 days, a good sign that consumers will sustain their spending.

Younger adults (18-29) did not fare as well as 49 percent said they were expecting an added expense or income shortfall, a 5-point increase from last month's survey. This is a turnaround from last month's survey in which younger adults expressed more confidence in their personal finances and the economy.

Consumers Prioritize Expenses According to Their Needs, Hold the Line on Discretionary Expenses

August was the first month during which the Monitor surveyed Americans on their spending intentions in various expense categories. At first glance, numbers appear to support the notion that consumers may be spending according to their needs. Over 90 percent said they expected to spend the same or more in the next month on household expenses like groceries, gas and utilities.

Fifty-seven percent said they would spend the same or more next month on major personal purchases such as travel and education. Sixty-one percent said they will save the same or more next month. But when it comes to discretionary expenses for things like dining out, going to movies, attending sporting events and personal hobbies, more than 4 out of 10 consumers (43 percent) said they intended to spend less next month.

"Consumers seem to be showing some resilience in the face of economic uncertainty," said Georgiadis. "They may be prioritizing their spending to accommodate their own needs. This may help explain why the economy has been able to withstand the mortgage industry's challenges and the down housing market. It will be interesting to see whether they establish a trend by holding the line on discretionary expenses as we gather more monthly data."

About the Discover Consumer Spending Confidence Monitor

The Discover Consumer Spending Confidence Monitor, released monthly, queried nearly 15,000 adult consumers in August 2007 about spending intentions and capacity. The survey also asked for opinions on the U.S. economy and ratings of personal finances. The survey was conducted by Rasmussen Reports, LLC, an independent survey research firm (www.rasmussenreports.com). It has a margin of error of +/- 1 percent.

About Discover Financial Services:

Discover Financial Services (NYSE: DFS) operates the Discover Card with more than 50 million cardmembers, the Discover Network with millions of merchant and cash access locations, and the Goldfish credit card business in the United Kingdom. Discover Financial Services also operates the PULSE ATM/debit network, which serves more than 4,400 financial institutions and includes nearly 260,000 ATMs, as well as POS terminals, nationwide. For more information, visit www.discoverfinancial.com.

SOURCE: Discover Financial Services

Discover Financial Services
Matthew Towson
224-405-5649