Changewave Research: Consumer Spending

ChangeWave Research: Consumer Spending

June Consumer Spending Report

No Signs Yet of a Summer Bounce for U.S. Consumers

Jean Crumrine and Paul Carton

Overview: Last month we reported a dip in U.S. consumer spending growth as inflation woes escalated (See May ChangeWave Consumer Spending Report). Now our June survey of 2,754 consumers finds yet another weakening of U.S. spending behavior going forward, along with a rapidly escalating deterioration in consumer expectations and confidence.

Of particular concern here, for the second survey in a row the growth rate has slowed among higher income households (greater than $100,000), which account for a disproportionately larger share of U.S. discretionary spending.

The June 1-10 survey also shows the slowdown in growth is disproportionately hitting restaurants, consumer durable goods, and electronics. On the Home Entertainment front, Apple and Amazon are showing outstanding performance during June, but it’s continued tough times for Best Buy.

A Further Weakening in Consumer Spending

Nearly one-in-three U.S. respondents (32%) say they'll spend more over the next 90 days than they did a year ago, but that’s 3-pts worse than our previous survey in May. Another 31% say they'll spend less – also 3-pts worse than previously.

Putting These Findings in Context. As the following chart shows, this is the second consecutive decline in consumer spending growth. Nonetheless the net 6-pt drop in the current survey is not as bad as the major 14-pt pullback we saw last summer (July 2010) – when only 30% said they’d be spending more and 32% less.

Of particular concern currently, for the second survey in a row the growth rate has slowed among higher income households (greater than $100,000) which account for a disproportionately larger share of discretionary spending.

Still, while things are tougher for the U.S. consumer than they were just a couple of months ago, it’s nowhere near as bad as the sharp descent we saw in the months leading up to the 2008-2009 recession. Nor is it as bad as the pullback we witnessed during the summer of 2010 – at least not yet.

Individual Spending Categories

This month’s ChangeWave survey shows the slowdown in growth is disproportionately hitting restaurants, consumer durable goods, and electronics.

Restaurant spending has registered the biggest decline of any category in the survey, with just 13% now saying they’ll spend more on eating out compared to 31% less – a net 5-pt decline since May and 9-pts lower than a year ago.

There are also signs of weakness in spending on Consumer Durable Goods – which has experienced a 2-pt decline since the previous survey.

Spending on Consumer Electronics has also declined a net 2-pts this month, while Travel/Vacation is down 1-pt.

On an upbeat note, spending on Household Repairs/ Improvements shows a slight 1-pt uptick this month – and in a surprise finding spending on Automobiles is also up 1-pt.

A Sharp Drop in Consumer Expectations and Confidence

During June, consumer expectations and confidence have continued to decline precipitously from the already low levels recorded last month.

Consumer Expectations. Fully half of respondents (51%) now believe the overall direction of the U.S. economy is going to worsen over the next 90 days – 13-pts more than previously. Only 11% think it will improve, a 14-pt decline to the lowest level in more than two years.

A Dramatic Decline in Stock Market Confidence. In a further sign of the gloomy consumer mind-set, three-in-five (60%) now say they are Less Confident in the U.S. stock market than they were 90 days ago – a huge 18-pt drop from previously. Only 7% say they are More Confident, 11-pts worse than in May.

We also asked respondents about their investing plans going forward, and find the rate of net money outflow from U.S. Stocks (-11; down 6-pts) has accelerated since May. Moreover, for the first time in nearly a year Non-U.S. Stocks (-2; down 9-pts) are also registering a money outflow.

In another sign of deteriorating sentiment, 30% now report they worry A Great Deal (10%) or Quite a Bit (20%) about someone in their family losing their job – 3-pts worse than previously.

Concerns Begin to Ease On Inflation and Higher Energy Costs

While still at historically high levels, consumer concerns over inflation and higher energy costs have begun to ease a bit.

After increasing in seven of the past eight surveys, the impact of Inflation (43%; down 4-pts) is finally leveling off among consumers who say they’ll be spending less over the next 90 days. Nonetheless it remains the top reason why consumers are cutting back.

Similarly, Higher Energy Costs (33%; down 2-pts) remains a top reason for spending less, but the number here has finally begun to decline for the first time in eight months. We’ll wait and see whether the recent drop in fuel costs proves a short-term phenomenon, or represents a longer-term trend toward lower price levels.

Regardless, what does the above mean for consumer spending and the overall economy?

In a positive sign, when consumers were asked about the impact of energy costs on their buying behavior, 15% said easing gas prices are now enabling them to spend more on other areas. In addition, 24% believe Easing Gas Prices Will Provide a Boost for the Economy.

But despite signs that the impact of inflation is stabilizing, a sizable majority still think energy costs and inflation will continue to negatively affect consumer behavior for the second half of the year – (e.g., 61% say High Energy Costs and Inflation Will Cause Consumers to Tighten Their Belts Further).

Retailer Trends

Major Retailers. For the second month in a row, the spending picture for most major retailers is flat to slightly lower in comparison to the previous month. That said, while Costco (COST) is down a net 1-pt since May, it continues to outperform all of the other major retailers in terms of spending growth going forward.

Home Entertainment Retailers. Not surprisingly, with the lack of momentum in consumer electronics spending there is little positive movement among home entertainment retailers.

The exceptions are Apple and Amazon, which are each showing outstanding performance during June. Amazon (AMZN) has equaled its best performance in the home entertainment market for the third consecutive survey – with 36% saying they’ll shop at Amazon for home entertainment and computer networking products during the next 90 days.

Apple (APPL; 17%) is also maintaining its outstanding performance of a month ago – and is just 1-pt below its all-time high in a ChangeWave survey.

While Wall Street bid up Best Buy (BBY) when its latest announcement showed earnings fell less than expected, we see continued tough times ahead for the home entertainment giant. In our current survey, Best Buy (33%) is experiencing its weakest visibility ever – down 2-pts to just 33% saying they’ll shop there for home entertainment/computer networking products in the next 90 days – the lowest level ever in a ChangeWave survey.

Bottom Line: Our June survey shows a further weakening in U.S. spending behavior, along with a rapidly escalating deterioration in consumer expectations and confidence.

In terms of categories, the slowdown is disproportionately hitting restaurant spending, consumer durable goods, and electronics. And for the second survey in a row the growth rate has slowed among higher income households, which account for a disproportionately large share of U.S. discretionary spending.

Note that even as the school year is just now drawing to a close, we expect it won’t be long before Wall Street sets its sights on Back to School trends in its search for an economic jumpstart. Thus, our July consumer survey will take a preliminary look at the Back to School season – along with other potential catalysts that might help the economy get back on track.

But for now, the best catalyst for an economy starving for good news would appear to be a further drop in fuel costs and a lower inflation rate.

Summary of Key Findings

The ChangeWave Alliance is a group of 25,000 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Helping You Profit From A Rapidly Changing World ™

www.ChangeWaveResearch.com

Table of Contents

Summary of Key Findings 8

The Findings 10

(A) Overall U.S. Consumer Spending 10

(B) Individual Spending Categories 13

(D) Impact of Inflation and Energy Costs 21

(E) Retailer Trends 24

(F) Home Entertainment Shopping 27

(G) Impact of the Economy on Investors 29

ChangeWave Research Methodology 30

About ChangeWave Research 30

The Findings

Introduction: Last month we reported a dip in U.S. consumer spending growth as inflation woes escalated (See May ChangeWave Consumer Spending Report). Now our June survey of 2,754 consumers finds yet another weakening of U.S. spending behavior going forward, along with a rapidly escalating deterioration in consumer expectations and confidence.

(A) Overall U.S. Consumer Spending

Would you say your overall spending over the next 90 days will be more than last year, less than last year, or the same as last year?

Current
Survey
Jun ‘11 / Previous
Survey
May ‘11 / Previous
Survey
Apr ‘11 / Previous
Survey
Mar ‘11 / Previous
Survey
Feb ‘11 / Previous Survey Jun ‘10 / Previous Survey May ‘10
More Spending Than Last Year / 32% / 35% / 37% / 37% / 35% / 38% / 40%
Less Spending Than Last Year / 31% / 28% / 27% / 26% / 24% / 26% / 24%
Spending Will Remain the Same as Last Year / 35% / 35% / 35% / 36% / 39% / 35% / 35%
Don't Know / 1% / 2% / 1% / 1% / 1% / 1% / 1%

Putting These Findings in Context. As the following chart shows, this is the second consecutive decline in consumer spending growth. Nonetheless the net 6-pt drop in the current survey is not as bad as the major 14-pt pullback we saw last summer (July 2010) – when only 30% said they’d be spending more and 32% less.

Current Survey (Jun 2011) – Breakdown by Income Levels

Total / Less
Than
$50,000 / $100,001-$150,000 / Greater Than $150,000
More Spending Than Last Year / 32% / 28% / 36% / 34%
Less Spending Than Last Year / 31% / 35% / 30% / 27%
Spending Will Remain the Same as Last Year / 35% / 35% / 33% / 38%

Previous Survey (May 2011) – Breakdown by Income Levels

Total / Less
Than
$100,000 / $100,001-$150,000 / Greater Than $150,000
More Spending Than Last Year / 35% / 30% / 37% / 39%
Less Spending Than Last Year / 28% / 34% / 25% / 23%
Spending Will Remain the Same as Last Year / 35% / 34% / 36% / 37%

(B) Individual Spending Categories

Which of the following consumer items will you be spending more money on over the next 90 days compared to last year? (Check All That Apply)

Current
Survey
Jun ‘11 / Previous
Survey
May ‘11 / Previous
Survey
Apr ‘11 / Previous
Survey
Mar ‘11 / Previous
Survey
Feb ‘11 / Previous Survey Jun ‘10 / Previous Survey May ‘10
Household Repairs/Improvements / 36% / 35% / 35% / 34% / 31% / 36% / 38%
Travel/Vacation / 32% / 30% / 32% / 29% / 27% / 35% / 31%
Consumer Electronics / 15% / 17% / 16% / 17% / 17% / 16% / 20%
Durable Goods for the Home / 13% / 14% / 13% / 13% / 13% / 13% / 15%
Restaurants/Everyday Entertainment / 13% / 14% / 16% / 15% / 14% / 16% / 17%
Healthcare Services / 12% / 12% / 13% / 14% / 15% / 11% / 11%
Children’s Services (e.g. camp, education, lessons, other activities / 8% / 9% / 7% / 8% / 7% / 10% / 9%
Automobile Purchase / 6% / 6% / 7% / 8% / 8% / 6% / 6%
Other Services (e.g. adult education, fitness activities) / 4% / 3% / 4% / 4% / 4% / 4% / 3%

And which of the following consumer items will you be spending less money on over the next 90 days than last year? (Check All That Apply)

Current
Survey
Jun ‘11 / Previous
Survey
May ‘11 / Previous
Survey
Apr ‘11 / Previous
Survey
Mar ‘11 / Previous
Survey
Feb ‘11 / Previous Survey Jun ‘10 / Previous Survey May ‘10
Consumer Electronics / 31% / 31% / 30% / 29% / 29% / 30% / 29%
Restaurants/Everyday Entertainment / 31% / 27% / 25% / 25% / 24% / 25% / 24%
Travel/Vacation / 27% / 24% / 23% / 23% / 23% / 24% / 23%
Durable Goods for the Home / 24% / 23% / 21% / 22% / 21% / 24% / 21%
Automobile Purchase / 21% / 22% / 20% / 19% / 19% / 21% / 21%
Household Repairs/ Improvements / 15% / 15% / 13% / 14% / 15% / 15% / 13%
Children’s Services (e.g. camp, education, lessons, other activities / 9% / 8% / 8% / 7% / 6% / 9% / 8%
Other Services (e.g. adult education, fitness activities) / 9% / 9% / 8% / 8% / 8% / 9% / 10%
Healthcare Services / 7% / 8% / 8% / 8% / 7% / 8% / 8%

Change in Net Difference Score - Current Survey (Jun 2011) vs. Previous Survey (May 2011)