Feb. 4, 2009

Discover® U.S. Spending Monitorsm Rises 1.2 Points; First Upturn In Five Months

Consumers Show Slight Increase in Economic Confidence, but Spending Intentions Remain Guarded

RIVERWOODS, Ill.--(BUSINESS WIRE)-- The Discover U.S. Spending Monitor rose 1.2 points in January, mainly due to a slight increase in economic confidence from consumers. The rise in optimism was largely offset by continued restraint on spending intentions, as consumers, buffeted by dismal housing, labor and financial news continue to keep a tight hold on their purse strings. As a result, the monthly index stood at 77.8 (base = 100), slightly better than the record low 76.6 set in December.

The January Monitor survey reflected both the uncertainty and the steadfastness of consumers in the face of the worst financial news in more than three decades.

Majority of Consumers Still Intending to Cut Discretionary Spending

The outlook on spending cast a long shadow. For only the second time in the Monitor’s two-year history, the percentage of Americans who plan to spend less in the following month, 29 percent, is greater than the percentage that plan to spend more, 17 percent. In contrast, these measures were almost the reverse in August 2008, the month before the financial crisis really took hold. Back then, 15 percent said they would spend less and 32 percent said they intended to spend more.

No spending category was immune from intended consumer cutbacks. A near-record 55 percent of Americans were prepared to spend less on discretionary categories like entertainment, dining out and movies next month. A majority of people (52 percent) are cutting back on household improvements and major personal purchases (51 percent) with both measures near their record highs. Finally, consumers are putting a sharp pencil to household expenses where a record high 70 percent are either holding the line or spending less, and a record low 28 percent say they will have to spend more on household expenses in the coming month.

“The last time the Monitor reported 55 percent of consumers intending to spend less on discretionary spending, gas prices were nearing $4 per gallon,” said Julie Loeger, senior vice president of marketing for Discover Financial Services. “Job losses and a poor economy have definitely replaced high gas prices as primary drivers of discretionary cost-cutting.”

Less Than a Majority Have Money Left Over After Paying Bills

Since September, the Monitor has shown a slow but noticeable reduction in the number of Americans who have money left over after paying the monthly bills, from 52 percent to 49 percent today. This is the first time since February 2008 that less than a majority (49 percent) of consumers have money left over after paying the monthly bills.

Despite the fact that fewer have money left over, there was some positive news: Of those who did have money left over, 78 percent had the same or more left over than the previous month. This was a 6-point jump from December. It is also the first time since October that less than 40 percent (37 percent) of consumers were expecting an added expense or an income shortfall in the month ahead.

Consumers Show Slight Improvement in Economic, Financial Outlook

Perhaps buoyed by the inauguration of the nation’s 44th president and pledges of an added economic stimulus from the new administration, consumers were slightly less pessimistic in their outlook for the economy. While virtually the same number of consumers rated the economy as poor (64 percent versus 65 percent in December), there was a 4-point drop from 71 percent to 67 percent in the number of consumers who think the economy is getting worse.

Twenty-three percent of consumers still rate their finances as poor, the same as last month, but there was a 2-point decline in the percentage of consumers who feel their finances are getting worse (52 percent in January versus 54 percent in December). The improvement came even though surveys in the last week of the month began to show sagging confidence.

“These are highly uncertain times for consumers,” said Loeger. “Consumers are trying to get their budgets under control, and trimming their expenses. While these moves are helping individual consumers combat the effects of the recession, they are unfortunately having an adverse effect on the economy.”

Monitor Rises with Obama Inauguration, Falls on Job Loss Reports

In the weeks leading up to the presidential inauguration, consumers reported a spurt in economic confidence, no doubt in anticipation of the change in administration and a new approach to the nation’s financial crisis. Had January ended on Inauguration Day, the Monitor’s Index would have been up more than 3 points. Even the swearing in of the nation’s first African-American president and the near certainty that Congress would enact a new stimulus plan could not stave off the burst of pessimism in the week following the inauguration.

For the seven days ending Jan. 28, the Monitor dipped more than 3 points. Fueling the decline was a 4-point drop in economic confidence and a 3-point plunge in the index measuring consumer spending intentions. The fall coincided with a barrage of post-inauguration news about job cuts.

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® U.S. Spending MonitorSM 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.

Source: Discover Financial Services

Discover Financial Services
Matthew Towson

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