Massive Consumer Spending Breakdown

By Paul Carton and Jim Woods

If you think October was bad for U.S. retailers, wait till you see what's in store for November.

ChangeWave's latest consumer spending survey shows yet another giant downturn in U.S. consumer spending going forward. And, relatively speaking, it's far more pronounced than the October downturn.

The survey of 2,763 U.S. consumers, completed Nov. 3, focused on spending patterns for the next 90 days, including the holiday season.

Here's what we found:

Grim Outlook

Fifty-nine percent of respondents said they'll spend less money during the next 90 days -- seven points worse than previously. Only 10% said they'll spend more -- eight points worse than previously.



"These findings strongly support the thesis that fourth-quarter earnings will be far more painful than currently expected," said Tobin Smith, founder of ChangeWave Research and editor of ChangeWave Investing.

Why are consumers spending less?

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Saving more money (up seven points to 33%), reduced income (up seven points to 33%) and reducing debt (up two points to 31%) were cited as the dominant reasons.

Weak Outlook Hits All Major Spending Categories

Spending is down for all consumer categories this holiday season compared with the previous holiday season (November 2007 survey). And, in nearly all instances, spending is down compared with just six weeks ago (September 2008).

Spending on restaurants/everyday entertainment looks particularly weak -- down a net 39 points from a year ago to a new all-time low. Similarly, consumer durable goods are now registering a new all-time low.

Consumer electronics remains one of the weakest spending categories. This is a big change from past holiday seasons, as a surge in the sector normally occurs at this time of year. Only 19% said they'll spend more on consumer electronics during the next 90 days, compared to 43% who said less -- a net 40 points worse than one year ago.



Double Whammy for Best Buy

Our survey findings point to a particularly weak holiday season for Best Buy (BBY). Only 44% said they'll shop there during the next 90 days -- down seven points from a year ago, and a three-point decline from September.

This is the lowest November reading for the home entertainment store that we've ever seen. The electronics giant faces a double whammy: Not only is this the weakest consumer electronics season in years, but among those who are buying, large numbers are fleeing Best Buy for the discount retailers.

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As the following chart shows, discounters Wal-Mart (WMT), up five points to18%, Sam's Club, up three points to 12%, and Costco (COST), up three points to 27%, are rapidly picking up share in the home entertainment and computer/networking market.



Tiny Uptick in Consumer Sentiment

The survey also asked respondents about their current impressions of the economy, and while consumer sentiment still looks awful, some of these indicators don't appear to be quite as dire as they were in September.

Fifteen percent of respondents said they think the overall direction of the U.S. economy is going to improve during the next 90 days -- three points better than a month ago. And while a huge 57% said they believe the overall direction of the U.S. economy will worsen, that number is nine points better than previously.

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In another small positive, 14% said they are more confident in the U.S. stock market than they were 90 days ago -- a seven-point improvement from previously. Sixty-four percent said they're less confident -- a five-point improvement.

Even though the above findings show the slide in consumer sentiment may be stabilizing, there are other less encouraging signs.

Sixty-four percent of respondents reported dissatisfaction with their personal finances -- a whopping 15-point jump since September.

In addition, 76% said the current state of the economy is worse than they thought it would be 90 days ago -- a two-point increase from previously.

Retail Store Trends

For the sixth consecutive survey, Costco and Wal-Mart remain the overall retail leaders going forward.

Once again, it is traditional retailers -- like Sears (SHLD), Bed Bath & Beyond (BBBY), Macy's (M), J.C. Penney (JCP) and Linens 'n Things -- that are showing the greatest weakness going forward.



While everyone knows that it's going to be a tough holiday spending season, these survey results show that we're in the midst of a massive consumer spending breakdown that now has a huge percentage of the U.S. public squeezing all they can out of every dollar.

And that includes gift shopping dollars. By a 12-to-1 margin (48% spending less money versus 4% spending more money) respondents reported they'll spend less money on holiday shopping this season than they did a year ago.

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Paul Carton is the Director of Research for the ChangeWave Alliance Research Network. Jim Woods is a Senior Editor for ChangeWave. The Research Network is a group of 20,000 highly qualified business, technology and medical professionals -- as well as early adopter consumers -- who work in leading companies of select industries. ChangeWave surveys its Network members weekly on a range of business and consumer topics, and converts the information into a series of proprietary quantitative and qualitative reports.

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