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Consumer spending, credit card offers decline in tandem

New studies show consumers, card issuers cutting back

By Tyler Metzger

Consumers aren't much in the mood to spend, and credit card issuers aren't much in the mood to let them, three new reports say.

Discover Financial Services reported Thursday that consumer confidence reached record lows as news of the nation's financial crisis begins to sink in. Consumer spending intentions and capacity fell a record 6 points in October to 80.4 out of 100, according to The Discover Spending Monitor.

The economic and financial news has caught up with consumer spending behaviors."

-- Margo Georgiadis
Vice President of Discover Financial Services

The drop will have consumers spending less now and in the future. According to the report, 71 percent of U.S. adults -- compared to only 46 percent last October -- said that they plan to spend the same or less next month. This percent plunge marks a record for the survey.

"October's numbers show consumers clearly are hunkering down to ride out the economic and financial crisis," Margo Georgiadis, vice president of Discover Financial Services, said in a press release.

Falling gas prices haven't eased consumers' concerns either, as 79 percent said they have not increased their spending in other areas due to lower fuel prices. Those who have increased spending said they use the money for gas and groceries.

"The economic and financial news has caught up with consumer spending behaviors," Georgiadis said.

Even upper-income consumers are feeling stretched. Another first for the survey reported that 51 percent of people who make over $75,000 plan to spend less on optional entertainment purchases. The only spending category to see an increase was savings and investing, which rose 3 points from September.

Clearly, consumers' attitudes toward the economy isn't bright. Almost two out of three of those surveyed said they ranked the economy as poor, and 72 percent think things are getting worse. Only a year ago, 19 percent of respondents ranked the economy as poor.

Holiday shopping to shrink
Even after all that turkey and regifted fruitcake, many Americans are going to tighten their belts on holiday shopping.

According to a study by Consumer Reports published today, 76 percent of Americans plan to slash holiday expenses such as gifts, travel, decorations and tipping. Among those who plan to cut back on holiday spending, 84 percent said they were willing to buy less for themselves.

But almost no one is planning to leave their pets out in the cold. Only 23 percent surveyed said they will spend less on their family pet, which is much smaller compared to 40 percent who said they'll buy less gifts for families and friends.

Besides the turbulant economy as a factor, many consumers plan to buy less because of leftover holiday debt. About 12 million, or 6 percent, of consumers still have debt from the last holiday season.

Expect to see an increse in cash for those precious presents. About half of respondents said they plan to use credit cards less and 21 percent plan to use cash more. This could result in a slow start to the buying season, too, as only 29 percent of consumers have started purchasing gifts.

Those who do still plan to buy are gobbling up gift cards, as they will be the No. 2 gift this season at 66 percent, falling just behind clothing at 69 percent.

Mail offers down
As people cut back, another study by Mintel Comperemedia shows credit card companies are helping consumers with that task as the number of credit card mail offers dropped to its lowest point in three years.

Top 10 mailers of credit card offers
  1. Chase
  2. Capital One Bank
  3. American Express
  4. Washington Mutual*
  5. Bank of America
  6. Citibank
  7. Barclays Bank
  8. Discover
  9. HSBC
  10. U.S. Bank
*Now owned by Chase
Source: Mintel Comperemedia

In 2005 and 2006, Mintel found that an average of 2.07 billion credit card offers were mailed quarterly. But last quarter, only 1.34 billion were mailed, illustrating a 28 percent drop from a year earlier.

Lisa Hronek, senior credit card analyst for the company, said the massive scale back is due to the economic crisis, but that offers declined long before the economy was on all our minds.

"Credit card companies have been cutting back direct mail dollars for years, as they realize that blanketing Americans with credit card offers doesn't translate to increased sign up or card usage," Hronek said in a press release. "But now, they're facing a twofold problem that is much worse. Not only are consumers tapped out financially, but issuers are also facing record losses."

As the holiday season approaches, expect to see less credit card offers in your mail, Hronek said. "Card issuers will focus on a narrower target audience, using refined marketing and more precise mailings to tap into people's true needs and desires."

See related: How to reduce credit card offers in the mail, Expect credit card offers even after bankruptcy, Consumers cut back, fear worsening finances

Published: November 7, 2008



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