Discover U.S. Spending Monitor Shows Little Movement in April

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.”

The Discover U.S. Spending Monitor 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).