The growing economic optimism among consumers coincided with a sharp drop in the number who thought things were getting worse. In February, nearly 70 percent said the economy was in for tougher times ahead compared to only 61 percent in March. This is the lowest this number has been since October 2007.
The rise in economic confidence among consumers appeared to have little effect on their spending intentions, however. And a record low number of consumers feel their personal finances are in good or excellent condition.
Majority of Consumers Planning to Continue Discretionary Spending Cuts
Consumers are not letting up on their intent to reduce spending. In March, there were considerably more consumers who said they expect to spend less, 28 percent, than there were expecting to spend more, 17 percent. This number is the exact opposite from a year ago when 36 percent of consumers expected to spend more while only 16 percent planned on spending less.
While anticipated discretionary spending edged up slightly in March, a majority of consumers still intend to spend less on discretionary items, 54 percent, home improvements, 52 percent, and major purchases, 51 percent. Heading into the spring and summer months, consumers are considerably more cautious than they were last year when only 49 percent reported in March 2008 their intent to spend less on discretionary items.
"The good news is a few more consumers are feeling the economy has turned a corner and better days lie ahead," said Julie Loeger, senior vice president of brand and product management for Discover Financial Services. "But rising economic confidence has not changed consumers’ spending behavior as a majority of them continue to anticipate cutting spending."
Consumers Focusing on Greater Savings, Debt Reduction
The caution consumers have shown with their spending intentions comes against a backdrop of continuing angst about debt. In March, nearly 57 percent of consumers said they are somewhat to very concerned about the debt they are carrying. So, it is hardly surprising that just over one American in three claims that they will have less debt six months from today. When asked what they would do with extra money if they had it, 38 percent of consumers said they would pay down either mortgage or credit card debt and 33 percent said they would save the money. Only 10 percent said they’d buy something they’ve been putting off and only 2 percent said they’d take a vacation with the extra money.
A majority, 51 percent, of consumers are doing their best to have some extra money left over after paying the monthly bills. This is the first time this number has been over 50 percent since December and up 2 points from February. In addition, more than 80 percent said they’d have the same or more money left in their pockets while there was no change in the number who said they would have less, 19 percent.
Rise in Economic Optimism, but Concern over Personal Finances Remains
The improved economic outlook from consumers coincided with news of a plan from the U.S. Treasury Department that will allow banks to package bad loans and sell them to private investors in the form of marketable securities. The plan, along with anticipation for the government’s economic stimulus program, ignited a month long rally on Wall Street that saw the Dow Jones Industrial Average surge nearly 1,400 points. The Dow’s rise seemed to lift the economic spirits of the nation. Not even bad news about the U.S. auto industry dampened spirits, as confidence in the economy rose even during the week that GM and Chrysler were pushed to the edge of bankruptcy. The economic component of the weekly Monitor rose 2.7 points for the week ending April 1, 2009.
Despite increased economic optimism, concerns from consumers over their personal finances remain. A third rate their finances as good or excellent, a Monitor low. By way of comparison, prior to the onset of the financial crisis in September, 40 percent of the nation’s buyers placed a good or excellent rating on their financial situation. Perhaps more telling is the fact that a majority of Americans, 52 percent, continue to believe that their finances are getting worse; and only 16 percent see things getting better, a point higher than February’s record low.
"Consumer spending intentions correlate with their concerns about their personal finances," said Loeger. "It is unlikely consumers will abandon the spending caution they’ve exhibited over the last few months until confidence in their personal finances improves."
