Posted on Thursday, February 17, 2011
Economic Confidence among Middle-Income Consumers Drives Record Increase in Monitor’s Index, but Consumer Spending Intentions Remain Flat
RIVERWOODS, Ill.-Consumers’ confidence sharply rebounded in January, fueled by a surge in the number of middle-income consumers who see improvement in the U.S. economy and in their personal finances are improving, according to the Discover U.S. Spending Monitor.
The Monitor, a poll of 8,200 consumers tracking economic confidence and spending intentions on a daily basis, jumped a record 5.6 points in January to 93.1, the highest level of confidence since November 2007. For just the second time in a year, the number of consumers rating the economy as good or excellent reached double digits at 10 percent, up 1 point from December. More than half of consumers, 51 percent, still rate the economy as poor, though this number is down 5 points from the month before. Thirty-seven percent of consumers rate the economy as fair, a three-point increase from December.
Overall, 33 percent of U.S. consumers feel economic conditions are getting better, a 9-month high and 4-point increase from December. Only 40 percent feel the economy is getting worse, the lowest number reported since the Monitor’s inception in May 2007 and a decline of 4 points from the month before. Twenty-two percent of consumers feel economic conditions are unchanged, down 1 point from December.
Middle-Income Consumers Show Biggest Gains in Economic and Financial Confidence
The Monitor’s record monthly rise came with a surge in economic and financial confidence among middle-income consumers, i.e. those earning between $40,000 and $75,000 a year. Confidence indicators among this demographic include:
• Fewer middle-income consumers rate the economy as poor: Fifty percent of middle-income consumers currently rate the economy as poor, down 11 points from December. Of those earning less than $40,000 a year, 59 percent rate the economy as poor, a 3-point decline from the month before. Consumers earning more than $75, 000 and rating the economy as poor also dropped in January, to 41 percent, 3 points less than December.
• More middle-income consumers feel the economy is getting better: Thirty-
• two percent of middle-income consumers feel the economy is getting better, a 7-
• point increase from December. Just 24 percent of consumers earning less than
• $40,000 believe the economy is getting better, up 2 points from the month
• before. Forty-nine percent of those making more than $75,000 believe the
• economy is getting better, a 5-point increase from December.
• Personal finances of middle-income consumers improve: Thirty-eight
• percent of middle-income consumers rate their finances as good or excellent, up
• 6 points from December. Seventeen percent of those earning less than $40,000
• rate their finances the same way, up 4 points from the previous month. Of those
• earning more than $75,000, 51 percent rate their finances as good or excellent,
• up 2 points from December.
• Fewer middle-income consumers feel their finances are declining: Only 40 percent of middle-income consumers feel their finances are getting worse, down 6 points from December and the lowest since October 2007. Fifty-seven percent of those consumers earning less than $40,000 feel their finances are getting worse, a 1-point decline from last month. Twenty-nine percent of those earning more than $75,000 feel their finances are getting worse, unchanged from December.
Consumers’ Discretionary Spending Intentions Remain Flat; Saving, Investing Intentions Rise
Despite the brightening economic and financial outlook from consumers, their discretionary spending intentions remained flat in January. Just 7 percent expect to spend more on going out to dinner or the movies, down 1 point from December. Twelve percent of consumers expect to spend more on home improvements, unchanged from December. Only 10 percent expect to spend more on travel or a health club membership, down 1 point from December.
But more consumers are expecting to increase their savings and investments. Sixty-two percent of consumers say they plan on putting away the same or more money in the month ahead, the highest number reported since October 2007.
“Consumers at all income levels feel economic and financial conditions are improving, and none more so than middle-income consumers,” said Julie Loeger, senior vice president of brand and product management for Discover. “However, this appears to be a cautious optimism, as all consumers, regardless of income level, indicate they are more likely to save or invest their money rather than increase discretionary spending.”
Only 35% Expecting an Added Expense or Loss of Income in the Month Ahead
With the surge in economic confidence, the Monitor reported a 12-month low in the number of consumers (35 percent) who anticipate an added expense or income shortfall in the month ahead. For just the third time in the last year, half of consumers were not expecting an added expense or income shortfall next month.
Though less worried about additional expenses, only 47 percent of consumers expected to have money left over after paying monthly bills, the 22nd consecutive month this number has been below 50 percent.
Eighty percent of those who do have money left over after paying monthly bills planned on having the same or more money left over than the previous month, erasing last month’s 7-point drop.