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