Income Fears Continue to Drag Down Spending

March 6, 2009

This article is included in these additional categories:

Analytics, Automated & MarTech | CPG & FMCG | Financial Services | Retail & E-Commerce

Despite tiny signs of stabilization in January’s consumer spending levels, results from ChangeWave Research’s February survey point to yet another downturn in US consumer spending, as well as continued pullbacks for the next several months.

ChangeWave’s monthly analysis also shows that consumer sentiment has taken a big hit, as two-thirds of respondents say they now believe the overall direction of the US economy will worsen during the next 90 days.

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Grim Spending Outlook

While the January consumer survey showed an encouraging indication of a leveling off in the rate of spending decline, the February results show a reversal and represent the worst spending outlook ever recorded in a ChangeWave survey.

Fully 61% of US respondents say they’ll spend less money during the next 90 days – four points worse than the January survey, Changewave said. Just 12% say they’ll spend more money – one point worse than previously.

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Consumer Sentiment and Expectations Tank

Changewave also asked respondents about their impressions of the economy, and found that consumer sentiment and expectations have turned considerably more negative.

Nearly two-thirds (64%) say they think the overall direction of the US. economy will worsen during the next 90 days – eight points worse than a month ago. Only 8% said they believe the economy will improve – a four-point decline to the lowest reading since Changewave began asking the question.

Other sentiment indicators are also less encouraging:

  • Only 14% say they are more confident in the US stock market than they were 90 days ago – 12 points worse than the previous survey. On the flip side, 42% said they’re less confident, 11 points worse than previously.
  • 59% of respondents report they are dissatisfied with their personal finances –one point worse than January. Just 4% say they are very satisfied.

Nest Eggs In Danger of Cracking

For the sixth consecutive survey since July, saving more money (up one point to 42%) has risen as a key concern and is now one of the top reasons why consumers say they are spending less. Reducing debt (down one point to 35%) also remains a top reason.

However, the #1 reason cited is reduced income (44%), which surged six points since January alone, the survey found. This large jump in such a short time highlights the serious impact the financial crisis is having on consumers and their jobs, according to Changewave.

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Restaurants, Consumer Electronics, Home Goods Hardest Hit

The Feburary survey records new lows in electronics spending and restaurant spending. Durable goods for the home have also taken a big hit.

For the second survey in a row, household repairs/improvements spending has stabilized. One possible explanation for this, ChangeWave said, may be that some consumers made home improvements their New Year’s resolution.

Retailers Brought to Knees

Survey results also indicate that even the largest and most successful of retailers are being deeply affected. For example, Costco – which has already experienced a significant drop in its growth rate in recent months – plunged five points in February, the biggest downward move for the wholesale club so far.

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Wal-Mart has performed admirably during most of this same time period, but it too appears to be hitting a wall going forward, ChangeWave said. Only 13% of consumers say they’ll spend more at Wal-Mart, while 11% said they’ll spend less, a four-point plunge since January.

The greatest weakness going forward is among traditional retailers – led by Macy’s (-13 points) and Sears (-13). Target (-10) has also taken a huge hit in recent weeks, falling three points.

Home Entertainment Shopping Down

On the home entertainment front, despite the fact that Circuit City (down four points to 3%) is now selling off its remaining inventory, Best Buy (unchanged with 38%) continues to show few signs of any windfall from its rival’s shutdown. Its market share remains significantly below that of a year ago (-7).

Apple (down two points to 9%) and Target (down two points to 6%) have also experienced declines since January in the home entertainment market, Changewave reported.

On the other hand, Amazon.com (25%), continues to hold its own, up one point from previously.

“Our February survey results show an overall spending environment that remains fiercely negative, as the tiny signs of stabilization we saw last month proved short-lived,” said Paul Carton, director of research for the ChangeWave Alliance. “Economically speaking, the honeymoon period for the new US administration appears to be over. Not only are further spending declines in store for the next 90 days, but consumer confidence and expectations for the future have worsened considerably.”

About the survey: The ChangeWave survey of 2,701 U.S. consumers was conducted Feb. 2-9, 2009.

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