The sharp rise in economic confidence also has consumers feeling better about their personal finances. The number of consumers saying their personal finances are getting better rose to 20 percent, a number not reached since September.
Despite their improved economic and financial attitudes, consumers are reluctant to increase their spending intentions, especially on discretionary purchases. Since January, the spending component of the index has improved less than a point, compared to the index’s economic component, which has jumped 18 points. With gas prices on the rise, consumers are preparing to spend more on household expenses, which judging from the Monitor’s history, may have a negative effect on discretionary spending intentions.
Discretionary Spending Remains Flat, Anticipated Household Expenses on the Rise
The number of consumers expecting to spend more in the month ahead rose to 20 percent. This rise coincided with an increase in the number of consumers expecting to spend more on household expenses like gas and groceries. For May, 30 percent of consumers expected to spend more on household expenses, a 5-point increase from April as gas prices reached their highest levels of the year. However, the 5-point increase is still less than half, 65 percent, of what was reported in May 2008.
With summer approaching, the Monitor also saw a 2-point rise to 16 percent in the number of consumers expecting to spend more on major personal purchases like a vacation.
But anticipated discretionary purchases like dining out and going to the movies remained largely flat, increasing less than a point to 10 percent in May. Nearly half, 49 percent, still plan on cutting back on these expenses. Half are also expecting to spend less on home improvement purchases, the same as last month, and 38 percent of consumers said they’ll be saving and investing less in the month ahead, nearly the same as last month.
"Consumers are feeling the economy is on the mend and their finances are improving, two things needed to revive consumer spending," said Julie Loeger, senior vice president of brand and product management for Discover Financial Services. "But just when economic conditions appear to be getting better, rising gas prices may give consumers a reason to continue cutting back on their discretionary spending intentions."
Less Than Half Have Money Left Over
Improving views of the economy and personal finances also hasn’t translated into increased savings month-to-month for a majority of consumers. Only 48 percent expect to have money left over after paying monthly bills, the same as last month and the second consecutive month this number has been below 50 percent. Of those who do have money left over, 78 percent plan on having the same or more money left over than the previous month. This is the first time this number has been below 80 percent since January.
However, for the fifth straight month, less than 40 percent of consumers said they were expecting an added expense or an income shortfall in the next 30 days.
Less Than Half Feel Economic Conditions and Their Finances are Getting Worse; a Monitor First
For the first time in the Monitor’s history less than half of consumers reported that both economic conditions and their finances are getting worse. In May, 49 percent of consumers felt the economy was getting worse, a 2-point improvement from April. Only 48 percent felt their finances were headed in the wrong direction, the same as April.
But current economic and financial conditions are still a drag on consumers. Only 8 percent rate the economy as good or excellent, up a point from April, but down 7 points from a year ago. The one bright spot is only 55 percent currently rate the economy as poor. While still a majority, this number has dropped 9 points since January.
Only 33 percent of consumers rate their finances as good or excellent, down 2 points from April and over 6 points from a year ago. The number rating their finances as poor has hovered between 22-24 percent since December.
"Consumers definitely see brighter days ahead even though currently, things don’t seem that great," said Loeger. "Hopefully, the worst is over and the improving economic and financial trends the Monitor has shown for the last three months will continue."
