Consumer Spending Stabilizing?

By Paul Carton and Jean Crumrine

ChangeWave's latest survey shows some intriguing signs that consumer spending may finally be stabilizing after a prolonged slowdown.

For the first time in eight months, we're seeing signs of a tiny spending uptick. Moreover, there's an improvement in consumer sentiment and expectations going forward.

But don't break out the champagne just yet. The overall spending environment remains fiercely negative, and this momentary improvement may prove to be short-lived -- similar to what happened after the tiny uptick in May 2008, that occurred as a result of the stimulus tax rebate program.

The combination of a new year, a new presidential administration, and lower inflation are likely contributors to the stabilization seen in this latest ChangeWave survey of 2,798 U.S. consumers, which was conducted Jan 5-9.

Here's a look at the good and the bad.

The Good

While overall spending still looks terrible, the 90-day outlook is not quite as horrible as it was in last month's survey (December 2008).

Fifty-seven percent of U.S. respondents said they'll spend less during the next 90 days than they did a year ago -- but that's three points better than in the December survey. Another 13% said they'll spend more -- two points better than previously.



A Bounce in Consumer Sentiment

Respondents were also queried on their current impressions of the economy and, once again, while things look bad, they don't appear quite as awful as they did in December.

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Twelve percent said they think the economy will improve in the next 90 days, which is a notable three points better than in December. And while 56% said they think the economy will worsen during the next 90 days, that's still a significant 10 points better than the December low.



Other sentiment indicators also show some improvement.

Five percent said they are very satisfied with the current state of their personal finances -- up one point from the record low in December. Another 39% said they're somewhat satisfied -- up eight points.

Twenty-six percent said they are now more confident in the U.S. stock market than they were 90 days ago -- 13 points better than previously. Only 31% said they're less confident -- a 25-point improvement.

The Bad

Consumers Are Still Hunkered Down

Among those U.S. consumers who said they're spending less, reduced income (up one point to 38%), saving more money (up two points to 41%) and reducing debt (up three points to 36%) were the top reasons given.

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We note that during the past six months, the percentage of respondents who said they're spending less in order to save more money has skyrocketed from 18% to 41%, and the percentage saying they're reducing debt has jumped from 24% to 36%.

Sluggish Spending in Every Category

Spending is sluggish in every consumer category, but the results aren't quite as bad as seen in the previous survey when nearly all categories hit a record low. However, spending remains far worse than a year ago (January 2008).

It's worth noting that for the first time in a year, there are slight signs of improvement in restaurant spending, although the category remains very weak. Only 6% said they'll spend more going forward, while 48% said less -- a net two-point improvement since December.

Spending on household repairs/improvements has also registered an uptick from the all-time low seen in ChangeWave's December survey. Twenty-six percent said they'll spend more on household repairs during the next 90 days, while another 21% said less -- a net four points better than last month.

Consumer electronics remains one of the weakest spending categories. And while a seasonal decline in purchase intentions is expected after the holidays, spending is still severely lower than the level of a year ago.

Only 15% said they'll spend more on consumer electronics going forward, compared with 41% who said less -- a net six points worse than the previous survey, and 22 points worse than a year ago.



Home Entertainment Shopping: Next 90 Days

For the third consecutive survey, Amazon.com (AMZN) (up one point to 24%) is the clear momentum leader in home entertainment and networking shopping. The survey also showed encouraging results for Amazon's electronic reading device, the Kindle, with 2% of respondents saying they've already purchased one, and 58% of current owners saying they're very satisfied with the Amazon product.

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Both Best Buy (BBY) (down six points to 37%) and Circuit City (CCTYQ) (down two points to 7%) show significant weakness going forward. There was a similar decline after the 2007 holiday season, but both are considerably lower than a year ago.

In another negative for Best Buy, only 6% said they'll spend more money there during the next 90 days -- one point less than last month. Thirty-nine percent said they'll spend no money there -- a 12-point jump to the highest reading to date.

Retail Store Trends

Since February 2007, ChangeWave's consumer surveys have consistently pointed to two retail winners: Wal-Mart (WMT) (net difference score = +6) and Costco (COST) (+6). But while both still lead among retail outlets in terms of spending growth during the next 90 days, Costco has experienced a significant drop in its growth rate in the past six months (from +11 in July '08 to +6 in January '09).



Once again, the greatest weakness going forward is among traditional retailers, led by Bed, Bath & Beyond (BBBY) (-14), Sears (SHLD) (-12), Macy's (M) (-12) and JC Penney (JCP) (-10).

Bottom Line

For the first time since May 2008, we're seeing signs of a tiny spending uptick. Moreover, there's an improvement in consumer sentiment and expectations going forward.

These improvements, however, are tenuous at best. Just as the May uptick was due, in part, to heightened expectations over the tax stimulus package, the current outlook may have much to do with the anticipation surrounding the new administration's economic stimulus plan.

Reduced inflation -- particularly lower gasoline prices -- is another likely contributor to this survey's modest signs of stabilization.

The big question going forward is whether these trends will continue in the aftermath of Obama's Inauguration, or if this is simply a short-term blip. We'll know more next month when our February survey results are in. Stay tuned.

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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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