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A Consumer Spending Recession
January 14, 2008Latest ChangeWave Survey points to negative consumer spending growth
By Paul Carton and Jim Woods
ChangeWave Research's latest consumer spending survey points to a recession in U.S. consumer spending. The January survey of 4,604 consumers focused on spending patterns for the next 90 days, and the results show a negative growth rate going forward.
According to the survey, 34% of respondents said they'll spend less during the next 90 days than they did a year ago. That's 9 percentage points worse than the previous survey, which was conducted in November. Just 29% said they'll spend more -- down three points from previously, while 36% said their spending will remain the same.
The decline in spending growth was seen occurring across all income levels -- even among respondents who earn more than $150,000 per year.
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"While this is ChangeWave's fourth-consecutive survey since June showing a consumer pullback, this is the first time consumer spending growth has actually gone into the red," said Tobin Smith, founder of ChangeWave Research and editor of ChangeWave Investing. "Frankly, the news doesn't look good on the spending front."
To put these findings in context, compare the latest January 2008 numbers in the chart above with the gradual contraction experienced during June through September 2006, in the period known as the "soft landing." Clearly, the current contraction looks quite different.
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Reasons for Spending Less
The survey asked the 34% of respondents who said they'll be spending less to explain why they planned to do so. Thirty-six percent pointed to inflation, which is six points higher than the previous ChangeWave survey in November. Another 33% blamed higher energy costs, which is four points higher than previously.
In a strong sign that consumers are worrying more about their nest eggs, 57% of those spending less said they're trying to improve their personal finances by reducing debt (32%) and saving more money (25%). These totals are also up four points since November.
Where is Spending Slowing?
Nearly every consumer category in the survey scored lower than a year ago in terms of spending going forward. This decline was led by restaurant spending, which has deteriorated 12 points compared to year-ago levels.
Other consumer spending categories down in the current survey include: travel/vacation (down seven points), consumer electronics (down seven points), durable goods (down four points) and household repairs/improvements (down two points).
Other Signs of a Deteriorating Economy
In other signs of weakness, 56% of respondents said they now think the overall direction of the economy is going to worsen during the next 90 days, a substantial 18-point jump since November. At the same time, only 9% said they believe the economy is going to improve, seven points worse than previously.
In addition, 29% said they are unsatisfied with the current state of their personal finances, an eight-point increase in this negative indicator since November.
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On a brighter note, the survey results did point to some winning stores regarding holiday gift shopping this year, with Costco (COST) leading the way in terms of spending growth.
Note that we previously reported bullish consumer spending findings on Costco in our November 2007 Consumer Spending Report, where we reported that, "Costco shows the most momentum with regards to spending growth for the holiday season … [and] shows momentum going forward."
On the downside, Bed, Bath & Beyond (BBBY), Kmart, The Gap (GPS) and Sears (SHLD) showed the weakest holiday numbers in the current survey.
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Paul Carton is Executive Director of the ChangeWave Alliance. Jim Woods is ChangeWave's Senior Editor. The Alliance is a network of 13,000 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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