Consumers hold back on discretionary spending

Household costs expected to trump vacations, eating out

By Cara Henis

Consumer spending on discretionary items is expected to diminish due to perceptions that more money will be necessary for groceries and gas in the coming months.

Twenty-three percent of Americans believe that they will need to spend more money on household expenditures in the month ahead, according to the June 2009 Discover U.S. Spending Monitor. This is the largest percentage since November 2008. The Discover U.S. Spending Monitor is a monthly index of consumer spending. Money that once went toward recreational activities is expected to be used elsewhere. According to the report, more than half of the respondents say they will limit unnecessary activities, such as eating out or going to the movies.

Along with feeling the need to curb excess spending, consumer confidence in the economy fell for the first time in four months, with 59 percent of respondents rating current economic conditions as poor.

Despite the decline in confidence, the belief that conditions will continue to worsen is lower now than in the past.  In June, 49 percent of consumers reported concerns of declining economic conditions looming. Customers were not as optimistic in March, when the Monitor reported 73 percent believed that the market would continue to suffer.  

Other June Spending Monitor economic indicators include:

• 50 percent of Americans plan on limiting home improvement purchases.
• 48 percent of consumers said they will spend less on "major personal purchases," a category including family vacations.
• 40 percent of consumers think they will have less to contribute to their savings and investments.

"Unemployment is the highest it's been in 26 years and higher gas prices have forced consumers to keep a tight budget. It's no wonder consumers are concerned about the economy and their finances," said Julie Loeger, senior vice president of brand and product management for Discover Financial Services, in a press release. "But for the second straight month, less than half feel economic conditions are getting worse, a sign that consumers are hopeful the worst of this economic recession has passed."

See related: Credit card balances keep falling, but pace slows, Fed says, Fed: Credit card, all consumer spending declines

Published: July 9, 2009

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