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By Jim Woods and Paul Carton
The May consumer spending uptick proved extremely short-lived, and despite the infusion of $150 billion in economic stimulus rebates, ChangeWave's latest survey results point to another downtick in U.S. consumer spending going forward.
The survey focused on spending patterns for the 90 days following July 2, and as the following chart shows, the new pullback in consumer spending reverses the slight improvement found in our previous survey.
More than 43% of U.S. respondents reported that they'll spend less during the next 90 days, which is a three-point drop since May 2008. Another 26% said they'll spend more -- two points worse than previously.
Why are consumers spending less? Inflation and its close cousin, high energy costs, continue to weigh heavily on consumers, as the next chart dramatically illustrates.
Fifty-six percent of the respondents who said they'll be spending less during the next 90 days cite higher energy costs as a primary reason for their projections, a seven-point jump since the May survey. Similarly, 56% also cited general inflation -- up four points from previously.
Positive behaviors like reducing debt (down two points to 24%), saving money (down four points to 18%) and investing (down five points to 8%) took a hit among those who reported they will spend less.
We'll take a closer look at how consumers are changing their behavior to cope with rising prices in an upcoming special ChangeWave report.
Consumers' Outlook Glum for the U.S. Economy
In a particularly grim finding, 49% of respondents said the current state of the economy is worse than they thought it would be 90 days ago -- an unprecedented 28-point increase since our May survey.
Additionally, 55% of respondents said they think the economy will worsen in the next 90 days, which is a whopping 16-point increase from a month ago. At the same time, only 11% said they think the economy is going to improve, which is six points worse than previously.
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In February we reported on the transformation in retail shopping (see ChangeWave's February consumer spending survey) led by sharply lower spending plans and higher inflation estimates. The transformation has continued, resulting in a huge shift by consumers to discount retailers and wholesale clubs. Moreover, the shift now appears to be solidifying into a permanent, long-term, secular trend.
For the fourth consecutive ChangeWave survey, Costco (COST) and Wal-Mart (WMT) are the two big retail store winners going forward. Sam's Club -- a Wal-Mart subsidiary -- also shows positive momentum.
The traditional retailers that have consistently shown weakness in our ChangeWave surveys during 2008 -- including Sears (SHLD), Bed Bath & Beyond (BBBY), Macy's (M), Linens 'n Things and JC Penney (JCP) -- continue to show deterioration going forward.
Other Sectors Slowing, Too
The slowdown in spending is by no means reserved for traditional retailers.
Travel/vacation spending registered the biggest slowdown of any spending category, and we'd normally expect strength during the summer season. Just 28% said they'll spend more on travel during the next 90 days compared with the 34% that reported they'll spend less -- a net eight-point decline from the previous survey in May.
Restaurant spending also took another hit going forward. We'll take a closer look at restaurants, including the winners and losers, in a follow-up ChangeWave report.
There's also little to cheer about in terms of consumer electronics spending. Only 14% of consumers said they'll spend more on consumer electronics during the next 90 days, compared with 34% who said they plan to spend less. That's a net two-point decline since May.
On the home entertainment front, Best Buy (BBY; down six points to 39%) and Circuit City (CC; down four points to 10%) are taking a hit because of sluggish electronics spending projections going forward.
On a brighter note, though, our two overall retail winners -- Costco and Wal-Mart -- are showing momentum in terms of home entertainment shopping. Amazon.com (AMZN) also shows an uptick going forward.
Our survey results point to a transformed world where American consumers have tightened the leash on their spending. And while that's good news for discounters and wholesale clubs, it's bad news for traditional retailers, to say the least.
Paul Carton is the Research Director of the ChangeWave Alliance. Jim Woods is ChangeWave's Senior Editor. The Alliance is a network of 15,000 highly qualified business, technology and medical professionals in leading companies of select industries. The Alliance is surveyed weekly on a wide range of business and investment research and intelligence topics.
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