Discover(R) U.S. Spending Monitor(SM) Falls In March

April 2, 2008

Increasing Concern Over the Economy, Personal Finances Contributes To New Monitor Low; Rising Household Expense Expectations Cuts Into Savings, Discretionary Spending

RIVERWOODS, Ill.--(BUSINESS WIRE)--April 2, 2008--The Discover U.S. Spending Monitor reached a new low in March as consumers grew even more concerned about the economy and their personal finances in the face of rising monthly expenses. The March Monitor fell to 85.1, down more than a full point from the previous month and lower by 11 points than just six months ago.

The Monitor steadily drifted downward during the middle of March as reports of financial troubles with Bear Stearns, record high oil prices and an emergency rate cut by the Federal Reserve gave consumers little optimism about the economy. Survey results also showed that consumers sharply underestimated their spending intentions for March. In February, 29 percent said they expected to spend more in March. When asked about their actual March spending, however, 46 percent reported they were spending more. The 17-point increase appears driven by sharp increases in household expenses such as gasoline, food and mortgages. In turn, consumers plan to actively cut back their discretionary spending and even savings to help make ends meet.

Expected Rise in Household Expenses Likely To Cut Into Savings, Discretionary Spending

Indeed, with rising costs, particularly associated with energy and food prices, consumers are anticipating higher household expenses. In March, there was a 12-point increase - from 40 percent to 52 percent - in the number of consumers who expect to spend more next month on household basics. To help balance their budgets, consumers are planning to actively spend less across all discretionary spending areas and to trim back savings. Just under half of consumers are cutting back on discretionary expenses like dining out, going to the movies or sporting events, and nearly 46 percent plan on spending less on home improvements or major personal purchases like vacations. Both of these numbers are Monitor highs. Over 39 percent said they would save or invest less next month, up from 36 percent last month.

"With no relief in sight at the pump or grocery store, consumers are actively cutting back on discretionary expenses to help keep budgets in balance," said Margo Georgiadis, executive vice president and chief marketing officer of Discover Financial Services. "Beyond sacrificing a family vacation or night out on the town, many consumers also are cutting back on savings to offset higher household expenses."

All demographics and income levels are being affected by the prospect of higher household expenses, even consumers making $75,000 or more. Nearly half (49 percent) of this segment said they expect to spend more on necessities next month. That's up 19 points from survey results in February and is the largest increase since November when oil prices unexpectedly rose entering the holiday season.

And just like everyone else, upper-income consumers are cutting discretionary expenses and savings to offset higher household expenses. This month, there was a 3.5-point increase to nearly 24 percent, a Monitor high, who claim they will save and invest less. There was a 4-point increase to 42 percent, also a Monitor high, among upper-income respondents who said they will spend less next month on discretionary items.

Nearly 50 Percent Have Money Left Over After Paying Monthly Bills, but Budgets Are Tight

The cutback in discretionary spending and savings did lead to one of the few glimmers of light in this month's survey. For the first time since September the survey found an increase in the number of consumers claiming to have money left over after paying their monthly bills (up 1.5 points to 49.7 percent).

On a less upbeat note, however, those with the same or more money left over versus the previous month hit a monitor low at just under 74 percent, down from over 79 percent in February. Nearly 26 percent had less money left over than the previous month, up from just over 20 percent in February. Upper-income consumers (those making $75,000 or more) had the sharpest increase in those with less money left over, rising to 22.7 percent versus 14.2 percent in February. This over 8-point increase was double the increase experienced by other income groups.

In addition, there was a 3-point increase to 40 percent in the number of consumers who anticipate added expenses or income shortfalls in the next month, reversing a three month decline. Upper-income consumers had the highest increase here as well increasing 6 points to nearly 31 percent.

"Consumers are proactively making changes in their spending to ensure that they have money left over at the end of the month," said Georgiadis. "Regardless of income level, consumers are cutting back on discretionary spending and savings to keep their budgets in balance and to prepare for continued expense pressures ahead."

Views on the Economy, Personal Finances Continue To Decline

Views on the economy continued to worsen in March, as nearly 50 percent rated the economy as poor, a Monitor high. Consumers are not optimistic about an upturn in the economy either, as 73 percent, also a Monitor high, feel that economic conditions are getting worse. These negative trends continued to new highs across all ages and income groups.

Dismal views on the economy carried over to declining views on personal finances. Nearly 60 percent of the nation's adults view their personal finances as fair or poor today. Looking ahead, half (50 percent) of consumers, a new Monitor high, believe that their personal finances are getting worse. Only 23 percent, a new low, believe that things are getting better. All income groups are concerned about their personal finances. Middle- and upper-income consumers hit new highs in those seeing their personal finances as worse ahead. Those earning $40,000 to $75,000 increased 2.3 points to 47 percent, while those earning over $75,000 increased 5.6 points to 37 percent.

"Consumers are extremely concerned about the economy and how they are going to continue to manage rising expense pressures," said Georgiadis. "Even upper-income groups are hitting new highs in their concerns about the economy and personal finances. This does not bode well for a struggling economy that needs a good dose of consumer spending to help fuel a rebound."

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

About the Discover U.S. Spending Monitor

The Discover U.S. Spending Monitor released monthly, queried 14,000 adult consumers in March 2008 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) 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