Upper-income consumers showed the biggest decline in economic confidence. With spending among upper-income consumers as a key indicator in determining the success of a holiday shopping season, this may be a concern to retailers who were hoping this income group could improve their holiday sales from a year ago. A Black Friday retail sales report from the National Retail Federation was consistent with what the Monitor showed during the month of November that consumers at all income levels had planned to cut back their holiday spending.
Heading Into Black Friday, 65% of Consumers Anticipated Spending Less on Holiday Gifts
Polling for the November Monitor ended two days before Black Friday and during that time there was a 2-point rise from 63 percent in late October to 65 percent in November in the number of consumers planning to spend less this year on holiday gifts. Upper-income consumers helped lead this number higher as 57 percent of them planned on cutting back their holiday spending compared to 55 percent in November 2008. Unfortunately for retailers, consumers stuck to their plans as the National Retail Federation reported that more consumers came out to shop during Black Friday than a year ago, but were spending less money.
“In the midst of the holiday season, consumers of all income levels are uncertain about the direction of the economy and where it may be headed,” said Julie Loeger, senior vice president of brand and product management for Discover. “Unfortunately, this uncertainty has consumers hard-pressed to help retailers boost their holiday sales.”
Anticipated spending on household expenses like gas and groceries rose for the second consecutive month from 34 percent to 37 percent as consumers most likely factored in travel and hosting friends and families for the holidays. But a majority of consumers will continue to cut overall discretionary spending to compensate. Fifty-percent plan on cutting purchases like going out to movies or restaurants. Likewise, 52 percent of consumers expect to cut home improvement spending. And 50 percent are planning to cut major personal purchases like vacations in the month ahead. Consumers even looked to cut back on their savings with 41 percent saying they planned to save or invest less in December, a 1-point increase.
Upper-income consumers were the exception in one spending category. There was an 8-point increase to 15 percent in the number of upper-income consumers planning to spend more on discretionary personal purchases. This number is also 3 points higher than November 2008.
Majority of Upper-Income Consumers Rate the Economy as Poor
For the first time since July, a majority of upper-income consumers currently rate the economy as poor, 55 percent. This was an 8-point jump from October and the biggest increase from this income group the Monitor has reported since September 2008. There was also a 5-point increase to 42 percent in the number of upper-income consumers who felt the economy was getting worse, the highest number reported since June.
While economic confidence deteriorated, upper-income consumers have always shown more financial confidence than lower or middle-income consumers according to the Monitor. That trend continued in November with nearly 60 percent rating their finances as good or excellent, the same as October. Middle and lower-income consumers were a lot less optimistic about their finances with only 34 percent of middle-income consumers and 16 percent of lower-income consumers rating their finances as good or excellent.
“November marked the first time in 26 years the unemployment rate reached double digits and while some economic reports have stated the economy is getting better, a majority of upper-income consumers tend to disagree,” said Loeger. “One bit of good news is that a bad economy doesn’t appear to be affecting their financial confidence.”
More Consumers Expect to Have Money Left Over After Paying Monthly Bills
Another bit of good news came from an increase in the number of consumers expecting to have money left over after paying monthly bills. This number increased 4 points from October’s Monitor-low to 48 percent. While still less than a majority for the eighth straight month, this is the highest this number has been since May. Furthermore, 40 percent were expecting an added expense or income shortfall in the month ahead, not unexpected due to holiday shopping, but still a point lower than October’s number.
