Dismal Consumer Spending Outlook

By Paul Carton and Jean Crumrine

In the aftermath of the massive consumer spending breakdown seen in our November consumer survey, the December survey shows the rate of decline stabilizing. However, the 90-day outlook is the worst on record in a ChangeWave survey.

Signs of the consumer retreat include record numbers saying they're spending less because they're trying to save more money and reduce debt.

Consumer sentiment has also taken a direct hit since November. Two-thirds of respondents said they believe the overall direction of the U.S. economy is going to worsen during the next 90 days.

The ChangeWave survey of 2,715 U.S. consumers was conducted Dec. 2-9.

Grim Spending Outlook

Sixty percent of U.S. respondents said they'll spend less money during the next 90 days -- one point worse than our previous survey in November 2008. Just 11% said they'll spend more money -- one point better than the previous survey.



Thus, after four consecutive surveys of progressively deeper spending contractions, the December results at last show a leveling off in the rate of decline. Still, the 90-day outlook remains astonishingly grim.

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The Hunkered-Down Consumer

Saving more money (up six points to 39%) and reducing debt (up two points to 33%) are still the dominant reasons given by consumers for why they're spending less.



Reduced income (up four points to 37%) also remains a top reason -- up for the third consecutive survey and a clear sign that the recession continues to take an enormous toll on the consumers' spending power.

Retail Store Trends

For the seventh consecutive ChangeWave survey, Wal-Mart (WMT) and Costco (COST) remain the retail leaders going forward.

However, Wal-Mart shows the most momentum, gaining one point for the second consecutive survey. Costco, on the other hand, has fallen two points since November.



Once again, the greatest weakness going forward is among the traditional retailers -- led by Sears (SHLD), Bed, Bath & Beyond (BBBY), Macy's (M), JC Penney (JCP) and Linens 'n Things.

Looking ahead, Target (TGT) (net score = -7) also shows significant weakness for the next 90 days.

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Consumer Electronics and Home Entertainment

We're at the peak of the holiday season, so it's not surprising that electronics spending has registered a slight uptick for the second consecutive month.

Nonetheless, it remains far weaker than past holiday seasons. Only 23% said they'll spend more on consumer electronics going forward -- up four points since the previous survey -- while 43% said they'll spend less.

Amazon.com (AMZN) (up two points to 23%) and Apple (AAPL) (up two points to 11%) are the clear momentum leaders in terms of home entertainment and networking shopping. Circuit City (CCTYQ) (down five points to 9%) and Target (down three points to 5%) show the greatest weakness going forward.

As for industry giant Best Buy (BBY), there continues to be critical warning signs . Only 7% of respondents said they'll spend more money there during the next 90 days compared with this time last year. And 36% said they'll spend less money there -- a net seven points worse than previously.

Sentiment Turns Even More Negative

We also asked respondents about their current impressions of the economy, and 66% said they think the overall direction of the U.S. economy will worsen during the next 90 days -- nine points worse than a month ago.

Only 9% said they believe that the economy will improve, which is six points worse than the previous survey.

Moreover, 64% reported that they are dissatisfied with their personal finances (unchanged from November), while just 4% said they are very satisfied (also unchanged).

Bottom Line

The latest ChangeWave survey shows the rate of the decline of U.S. consumer spending stabilizing, but the 90-day outlook remains the worst on record.

An astonishing 60% of respondents said they'll spend less money during the next 90 days, while only 11% said they'll spend more money. And record numbers reported they're spending less because they're trying to save money and reduce debt.

Consumer electronics spending registered a slight uptick as we hit the peak of the holiday season, with Amazon and Apple the clearest beneficiaries of an otherwise depressed retail environment.

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Paul Carton is the Director of Research for the ChangeWave Alliance Research Network. Jean Crumrine is an Associate Director of Research. 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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