Many Consumers Continue to Cut Back on Discretionary Spending; Majority Plan to Use Tax Refunds and Rebates to Pay Household Expenses and Debt
RIVERWOODS, Ill., May 07, 2008 (BUSINESS WIRE) -- The April Discover U.S. Spending Monitor reflected a continuing
pattern of economic concern from consumers in the face of rising
expenses. For the last four months including April, the Monitor has
remained in the 85-86 range. The April index rose a scant .3 from
March when the index hit its lowest point ever. The up-tick to 85.4
was primarily the result of higher spending expectations.
Confronted with record high gasoline prices and the effects of the
sub-prime mortgage crisis, consumers continue to have little
confidence in the U.S. economy. In the meantime, the number of
consumers who say they are spending more, particularly on household
expenses, rose for the third straight month to 38 percent.
Even with a large majority of consumers expecting a tax refund and
a tax rebate from the federal government's economic stimulus package,
the expected additional money appeared to do little to ease consumers'
concern over their personal finances or the economy.
Majority Say Tax Refund and Rebate Will Be Used to Pay Household
Expenses, Debt Repayment
In the month Americans were filing their income tax returns,
nearly two-in-three (62 percent) said they expected to get a refund
this year. But indicative of the strain on households resulting from
the country's economic circumstances, 62 percent of those getting
refunds cited that they planned to spend the windfall on basic
household expenses or debt repayment. Another 18 percent said they
intended to put their money in savings or investments. Only 20 percent
said they planned to put money back into the economy.
Those consumers expecting a tax rebate from the economic stimulus
package showed similar numbers with nearly 59 percent planning to
spend their rebate on household expenses and paying down debt, 18
percent planning to save or invest their rebate, 11 percent planning
household improvements and eight percent planning to take a vacation.
The expected tax refunds and rebates did little to change consumer
spending habits in the month ahead. Many consumers are continuing to
cut their discretionary spending and even their savings in the wake of
higher household expenses. Nearly 56 percent expect to spend more on
household expenses in the next month. To compensate, 51 percent are
expecting to spend less on discretionary personal expenses like dining
out or going to the movies, a new Monitor high. Forty-six percent of
consumers expected to cut back on home improvements and major personal
purchases like a vacation, also a Monitor high. Savings remained
relatively flat compared to a month ago with 39 percent expecting to
save or invest less.
"Many consumers continue to trim family vacations, a night on the
town and even their savings to offset higher household expenses," said
Margo Georgiadis, executive vice-president and chief marketing officer
for Discover Financial Services. "With no relief in sight, consumers
seem at the ready to deploy whatever windfalls they may experience -
like tax refunds - to help balance their budgets."
Lower and middle income consumers hit record highs in April in
curtailing their discretionary spending, with 57 percent of those
making under $40,000 and nearly 54 percent of consumers making
$40,000-$75,000 planning to spend less on discretionary personal
purchases. One positive sign during April was there was a rise by
nearly four points in the number of consumers making over $75,000 who
plan to increase their discretionary spending. Those making $75,000+
also intend to spend more on home improvements, and major personal
purchases like a vacation.
Half of Consumers Manage to Have Money Left Over After Paying
Monthly Bills, but Tight Budgets Remain
The latest numbers from the Monitor suggest many consumers are
struggling to maintain their budgets. Half of all consumers expected
to have money left over after paying monthly bills, but over a quarter
(27 percent) of those who have money left over say they have less
money left over than the previous month. This was unchanged from
March, but up six points since February. Likewise, there is growing
concern about added expenses or shortfalls of income. In April, 42
percent were concerned about a sudden negative impact on income, up
another point and up nearly five points since February.
People who earn less than $40,000 a year hit a new low of 31
percent in the number who expected to have money left over after
paying bills. And of those who have money left over, nearly 33 percent
expect to have less money left over than the previous month, up a
point from March and eight points higher than the average.
It also appears that lower and middle income consumers don't
believe pressures will abate soon, as a Monitor high 52 percent of low
income consumers are expecting an added expense or income shortfall in
the coming month. Nearly 40 percent of middle income consumers expect
an income shortfall in the next month, also a Monitor high.
Consumers Economic and Personal Finance Outlook Remains Grim
Nearly three-out-of four consumers in the U.S. (74 percent) now
think that the economy is getting worse and, in a related measure,
more than one-in-two (52 percent) claim that their personal finances
are headed the same direction. This economic ill will has been
gathering steadily since December of last year when 66 percent saw the
economy worsening and 45 percent felt their finances were
deteriorating.
In April, 64 percent of consumers making $40,000 or less said
their personal finances were getting worse, up four points from March.
One of the few positives from the Monitor showed that upper income
consumers may be rebounding. While still low compared to numbers
reported last fall, 13 percent of upper income consumers feel that
economic conditions are getting better, up nearly two points from
March. And 24 percent rate their personal finances as excellent, also
up two points from March.
"We're learning just how adaptable consumers are when it comes to
dealing with a slow economy and rising expense pressures," said
Georgiadis. "With rising household expenses, lower and middle income
consumers are continuing to feel the pressure and continuing to cut
back their spending. But there are some positive indicators in the
Monitor showing that upper income consumers may be increasing their
discretionary spending and may feel the economy may be on the mend."
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.
SOURCE: Discover Financial Services
Discover Financial Services
Matthew Towson
224-405-5649