Changewave Research: Consumer Spending 90 Day Outlook

ChangeWave Research: Consumer Spending – 90 Day Outlook

Consumer Spending: Next 90-Days

It’s An Uptick! U.S.Consumer SpendingContinues to ImproveinSeptember

Paul Carton and Jean Crumrine

Overview: A new ChangeWave survey of 2,719 U.S.consumers shows that spending iscontinuing to improve going forward,led by upticks in consumer electronics, durable goods for the home, restaurant spendingand household repairs/improvements.

Tempering these findings, the September 1-11surveyshowslarge numbers of consumers are still hunkered down attempting to repair their finances. Moreover, there are few signs the September spending increase will result in any big improvements forthe major retailers.

Nonetheless,the 90 day outlook is apositive and hopeful sign for the economyas we head towards the crucial holiday spending season.

Improved Spending for September

Better than one-in-four U.S. consumers (26%) now say they'll spend more over the next 90 days than they did a year ago – up 2-pts since the previous survey in August. While 41% still say they’ll spend less, that’s 3-pts improved from previously.

Improvement Across MultipleCategories. The improvement in consumer spending is occurring across several key categories – with consumer electronics, restaurants spending, durable goods for the home,and household repairs/improvements the biggest beneficiaries.

Consumer Electronics spending has risena net 3-pts since August – with 17% saying they’ll spend more on electronics going forward compared to 34% less.

For the first time since June we’re also seeing an improvement in Restaurant spending– up a net 2-pts since the previous survey.

Spending on consumer Durable Goods for the Home has continuedto improve for the second consecutive survey – and is up a net 2-pts for the month.

In addition, for the first time since May 2009 spending on Household Repairs/Improvementsis improving (up 2-pts) – with 34% saying they’ll spend more compared to 16% less.Other categories, however,show weakness –particularly automobiles.

After having experienced an uptick in the previous survey,Automobile spending is down 2-pts in the current survey –most likely due to the ending of the hugely popular ‘Cash for Clunkers’ program.

Travel/Vacation spending(-3 pts) is also showing weakness, partially due to seasonal factors. We note the category is a full 9-pts improved over a year ago.

Reasons for Spending Less. We askedconsumers who reported they are spending less to tell us why, and found large numbers still worried about repairing their finances.

As such, Saving More Money (36%; down 1-pt) and Reducing Debt (35%; up 1-pt) continue to remain key reasons why consumers say they’re spending less, along with the number one reason,Reduced Income (48%; down 1-pt).

In a positive economic sign, theRecent Purchase of a Big Ticket Item (7%) experienced a 1-pt uptick as a reason forwhy consumers say they’re nowspending less. We note that Education Expenses (8%; up 1-pt) have also registered an increase.

Retail Store Trends

The spending picture among major retailers has remained relatively unchanged since August. With the exception of Sam's Club (WMT; +2), which is currently showing momentum, the only other U.S. retailers in our survey to registerslight increases were Nordstrom (JWN) and Sears (SHLD) – each up 1-pt in overall spending going forward.

Note this is the first time since before the recession began that we’ve picked upslightindications of momentum for Nordstrom.

Somewhat surprisingly, the large discount retailers have registered a slight downticksince theAugust survey, withCostco (COST) declining 2-pts and Wal-Mart (WMT) down 1-pt.Target (TGT) – which hasshown momentum in recent surveys – is also down 2-pts.

On the home entertainment front, Sam's Club (10%; up 1-pt) and eBay (EBAY; 8%; up 1-pt) are the two retailers showingsigns of momentum in entertainment and networking shopping – even as industry leader Best Buy(BBY; 40%) remains unchanged.

We note thatAmazon (AMZN) finds itselfdown slightly from its record high of three months ago, although it’s still up 8-pts compared to one year ago.

Consumer Sentiment and Expectations

When we asked consumers about their impressions of the economy, we found that in surprising contrast to the morebullish outlook of our previous survey, consumer sentiment and expectationswere actually down this month.

Consumer Expectations. Better than a third (34%) think the overall direction of the U.S. economy is going to worsen over the next 90 days – which is 5-pts worse than August. Another 27% believe it will improve – but that’s 3-ptsworse than previously.

Also, in a sign of weakerconsumer confidence, only 28% say they are More Confident in the U.S. stock market than they were 90 days ago – 10-pts worse than in August. One-in-three (32%) say they’re Less Confident – 11-pts worse.

Bottom Line: Spending iscontinuing to improve going forward,led by upticks in consumer electronics, durable goods for the home, restaurant spending,and household repairs/improvements.

Tempering these findings, our September survey shows large numbers of consumers are still hunkered down attempting to repair their finances. Moreover, there are few signs the September spending increase will result in any big improvements for the major retailers.

Nonetheless,things are looking significantly more positive for consumers as we head towards the crucial holiday spending season.

Summary of Key Findings

iIn

The ChangeWave Allianceis a group of more than 20,000 highly qualified business, technology, and medical professionals – as well as early adopter consumers – who work in leading companies of select industries. They are credentialed professionals who spend their everyday lives on the frontline of technological change. 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.

Helping You Profit From A Rapidly Changing World ™

Table of Contents

Summary of Key Findings...... 5

The Findings...... 7

(A) Overall U.S. Consumer Spending...... 7

(B) Spending Categories...... 8

(D) Retailer Store Trends...... 14

(E) Home Entertainment Shopping...... 17

(F) Consumer Sentiment and Expectations...... 19

(G) Impact of the Economy on Investors...... 22

ChangeWave Research Methodology...... 24

About ChangeWave Research...... 24

The Findings

Tempering these findings, the September 1-11 survey shows large numbers of consumers are still hunkered down attempting to repair their finances. Moreover, there are few signs the September spending increase will result in any big improvements for the major retailers.

Nonetheless,the 90 day outlook is a positive and hopeful sign for the economy as we head towards the crucial holiday spending season.

(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
Sep ‘09 / Previous
Survey
Aug ‘09 / Previous
Survey
Jul ‘09 / Previous
Survey
Jun ‘09 / Previous
Survey
May ‘09 / Previous
Survey
Apr ‘09 / Previous
Survey
Sep ‘08
More Spending Than Last Year / 26% / 24% / 22% / 25% / 21% / 16% / 18%
Less Spending Than Last Year / 41% / 44% / 45% / 43% / 47% / 55% / 52%
Spending Will Remain the Same as Last Year / 32% / 31% / 32% / 31% / 31% / 28% / 29%
Don't Know / 1% / 1% / 1% / 1% / 1% / 1% / 1%

Improved Spending for September. Better than one-in-four U.S. consumers (26%) now say they'll spend more over the next 90 days than they did a year ago – up 2-pts since the previous survey in August. While 41% still say they’ll spend less, that’s 3-pts improved from previously.

(B) 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
Sep ‘09 / Previous Survey
Aug ‘09 / Previous Survey
Jul ‘09 / Previous
Survey
Jun ‘09 / Previous
Survey
May ‘08 / Previous
Survey
Apr ‘09 / Previous
Survey
Sep ‘08
Household Repairs/Improvements / 34% / 33% / 33% / 33% / 36% / 33% / 30%
Travel/Vacation / 22% / 25% / 26% / 29% / 24% / 20% / 18%
Consumer Electronics / 17% / 16% / 14% / 14% / 16% / 11% / 14%
Healthcare Services / 13% / 12% / 11% / 12% / 12% / 12% / 12%
Durable Goods for the Home / 12% / 11% / 10% / 11% / 11% / 11% / 11%
Restaurants/Everyday Entertainment / 11% / 10% / 10% / 10% / 10% / 6% / 6%
Children's Services (e.g. camp, education, lessons, other activities) / 9% / 9% / 9% / 11% / 9% / 8% / 10%
Automobile Purchase / 7% / 8% / 7% / 7% / 7% / 5% / 6%
Other Services (e.g. adult education, fitness activities) / 4% / 4% / 4% / 4% / 4% / 4% / 4%

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
Sep ‘09 / Previous Survey
Aug ‘09 / Previous
Survey
Jul ‘09 / Previous
Survey
Jun ‘09 / Previous
Survey
May ‘08 / Previous
Survey
Apr ‘09 / Previous
Survey
Sep ‘08
Restaurants/Everyday Entertainment / 36% / 37% / 37% / 37% / 38% / 44% / 44%
Consumer Electronics / 34% / 36% / 37% / 36% / 36% / 41% / 40%
Travel/Vacation / 32% / 32% / 35% / 32% / 35% / 36% / 37%
Durable Goods for the Home / 25% / 26% / 27% / 26% / 27% / 29% / 27%
Automobile Purchase / 25% / 24% / 24% / 24% / 26% / 26% / 23%
Household Repairs/Improvements / 16% / 17% / 17% / 16% / 16% / 18% / 18%
Other Services (e.g. adult education, fitness activities) / 10% / 10% / 9% / 9% / 10% / 10% / 9%
Children's Services (e.g. camp, education, lessons, other activities) / 9% / 9% / 8% / 8% / 8% / 8% / 8%
Healthcare Services / 7% / 8% / 7% / 8% / 8% / 8% / 6%

Change in Net Difference Score – Current Survey (September 2009) vs. Previous Survey (August 2009)

Current
Survey
Net
Difference
Score
(Sep 2009) / Previous
Survey
Net
Difference
Score
(Aug 2009) / Change in Net Difference Score
Consumer Electronics / -17 / -20 / +3
Durable Goods for the Home / -13 / -15 / +2
Household Repairs/Improvements / +18 / +16 / +2
Restaurants/Everyday Entertainment / -25 / -27 / +2
Healthcare Services / +6 / +5 / +1
Children's Services (e.g. camp, education, lessons, other activities) / 0 / 0 / 0
Other Services (e.g. adult education, health and fitness activities) / -6 / -6 / 0
Automobile Purchase / -18 / -16 / -2
Travel/Vacation / -10 / -7 / -3

Improvement Across Multiple Categories. The improvement in consumer spending is occurring across several key categories – with consumer electronics, restaurants spending, durable goods for the home,and household repairs/improvements the biggest beneficiaries.

Consumer Electronics spending has risen a net 3-pts since August – with 17% saying they’ll spend more on electronics going forward compared to 34% less.

For the first time since June we’re also seeing an improvement in Restaurant spending– up a net 2-pts since the previous survey.

Spending on consumer Durable Goods for the Home has continuedto improve for the second consecutive survey – and is up a net 2-pts for the month.

In addition, for the first time since May 2009 spending on Household Repairs/Improvementsis improving (up 2-pts) – with 34% saying they’ll spend more compared to 16% less.

Other categories, however, show weakness – particularly automobiles.

After having experienced an uptick in the previous survey,Automobile spending is down 2-pts in the current survey –most likely due to the ending of the hugely popular ‘Cash for Clunkers’ program.

Travel/Vacation spending(-3 pts) is also showing weakness, partially due to seasonal factors. We note the category is a full 9-pts improved over a year ago.

We asked consumers who reported they are spending less to tell us why, and found large numbers still worried about repairing their finances.

In a positive economic sign, the Recent Purchase of a Big Ticket Item (7%) experienced a 1-pt uptick as a reason for why consumers say they’re now spending less. We note that Education Expenses (8%; up 1-pt) have also registered an increase.

For the second consecutive survey we find Inflation (18%; down 2-pts) and Higher Energy Costs (9%; down 2-pt) have declined as key reasonsfor spending less – a positivesign for consumer spending and inflation going forward.

Here’s the complete breakdown:

For those who will be spending less than last year, what are the most important reasons why?(Choose No More Than Three)(n=1,092)

Reasons Given By Respondents Spending Less / Current
Survey
Sep ‘09 / Previous
Survey
Aug ‘09 / Previous
Survey
Jul ‘09 / Previous
Survey
Jun ‘09 / Previous
Survey
May ‘09 / Previous
Survey
Apr ‘09 / Previous Survey
Sep ‘08
Cost of Living/Inflation
General Inflation / 18% / 20% / 22% / 20% / 20% / 18% / 49%
Higher Energy Costs / 9% / 11% / 12% / 11% / 7% / 7% / 38%
Medical Expenses / 9% / 9% / 8% / 9% / 7% / 8% / 6%
Education Expenses / 8% / 7% / 7% / 6% / 6% / 6% / 6%
Trying to Improve Personal Finances
Saving More Money / 36% / 37% / 36% / 38% / 40% / 41% / 26%
Reducing Debt / 35% / 34% / 33% / 32% / 34% / 34% / 29%
Investing More Money / 10% / 12% / 9% / 10% / 12% / 11% / 7%
Big Ticket Purchases/Expenses
Home Improvement Expenses / 8% / 8% / 7% / 8% / 8% / 7% / 8%
Recent Purchase of Big Ticket Item(s) / 7% / 6% / 6% / 6% / 5% / 5% / 7%
Purchased New Home / 2% / 3% / 2% / 3% / 2% / 2% / 3%
Mortgage/Home Equity Costs
Mortgage Payment Increased / 4% / 4% / 3% / 3% / 3% / 3% / 4%
Home Equity Loan Payment Increased / 2% / 1% / 2% / 1% / 1% / 1% / 2%
Other
Reduced Income / 48% / 49% / 48% / 49% / 45% / 50% / 26%
Value of Home Decreased / 12% / 13% / 14% / 11% / 12% / 12% / 11%
Traveling Less / 9% / 12% / 15% / 12% / 12% / 13% / 10%

(D) Retailer Store Trends

We want to learn more about how Alliance members will be spending their shopping dollars over the next 90 days. For each of the following stores, please tell us if you will be spending more money, about the same amount, or less money over the next 90 days compared with the previous 90 days.

More Money / Less Money / Net
Score / Change
In
Net
Score / Same Amount of Money / No Money
Sam's Club / 7% / 4% / +3 / +2 / 21% / 59%
Nordstrom / 2% / 6% / -4 / +1 / 11% / 71%
Sears / 3% / 12% / -9 / +1 / 23% / 52%
Dillard's / 1% / 5% / -4 / +1 / 10% / 74%
Fred's / 0% / 1% / -1 / 0 / 3% / 85%
BJ's Wholesale Club / 1% / 2% / -1 / 0 / 6% / 80%
Bloomingdale's / 0% / 2% / -2 / 0 / 3% / 84%
Ross / 2% / 4% / -2 / 0 / 10% / 73%
T.J. Maxx / 3% / 6% / -3 / 0 / 17% / 63%
K-Mart / 1% / 7% / -6 / 0 / 18% / 64%
JC Penney / 3% / 9% / -6 / 0 / 24% / 55%
Macy's / 3% / 11% / -8 / 0 / 23% / 55%
Bed, Bath & Beyond / 3% / 9% / -6 / -1 / 22% / 57%
Wal-Mart / 12% / 9% / +3 / -1 / 50% / 22%
Costco / 10% / 6% / +4 / -2 / 33% / 43%
Target / 7% / 12% / -5 / -2 / 47% / 25%

Retailers Showing Some Momentum:The spending picture among major retailers has remained relatively unchanged since August. With the exception of Sam's Club (WMT; +2), which is currently showing momentum, the only other U.S. retailers in our survey to register slight increases were Nordstrom (JWN) and Sears (SHLD) – each up 1-pt in overall spending going forward.

Note this is the first time since before the recession began that we’ve picked up slight indications of momentum for Nordstrom.

Somewhat surprisingly, the large discount retailers have registered a slight downtick since the August survey, with Costco (COST) declining 2-pts and Wal-Mart (WMT) down 1-pt.

Target (TGT) – which has shown momentum in recent surveys – is also down 2-pts.

(E) Home Entertainment Shopping

Over the next 90 days, which of the following stores do you think you and your family will shop at for home entertainment and computer/ networking products? (Choose No More Than Three)

Current
Survey
Sep ‘09 / Previous
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Aug ‘09 / Previous
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Jul ‘09 / Previous
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Jun ‘09 / Previous
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May ‘09 / Previous
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Apr ‘09 / Previous
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Mar ‘09 / Previous
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Sep ‘08
Best Buy / 40% / 40% / 37% / 40% / 38% / 39% / 33% / 47%
Amazon / 26% / 27% / 25% / 28% / 27% / 23% / 26% / 18%
Costco / 23% / 25% / 24% / 24% / 24% / 23% / 23% / 24%
Wal-Mart / 16% / 18% / 17% / 17% / 17% / 17% / 19% / 13%
Apple / 11% / 12% / 9% / 10% / 12% / 8% / 10% / 9%
Sam's Club / 10% / 9% / 9% / 9% / 10% / 9% / 9% / 9%
Fry's Electronics / 9% / 9% / 8% / 8% / 9% / 8% / 8% / 9%
eBay / 8% / 7% / 7% / 8% / 7% / 7% / 8% / 6%
Staples / 8% / 8% / 7% / 9% / 8% / 8% / 9% / 7%
Newegg / 6% / 7% / 6% / 6% / 6% / 6% / 6% / 5%
Office Depot / 6% / 7% / 5% / 7% / 8% / 6% / 7% / 6%
Target / 6% / 6% / 6% / 6% / 7% / 5% / 7% / 6%
Dell Online / 5% / 6% / 4% / 5% / 7% / 4% / 5% / 3%
Buy.com / 4% / 4% / 4% / 4% / 4% / 4% / 4% / 4%
TigerDirect / 4% / 5% / 5% / 5% / 5% / 5% / 4% / 3%
FutureShop / 3% / 3% / 3% / 4% / 3% / 4% / 2% / 4%
MicroCenter / 3% / 3% / 2% / 3% / 3% / 3% / 2% / 3%
BJ's Wholesale Club / 2% / 2% / 3% / 2% / 2% / 2% / 2% / 2%
OfficeMax / 2% / 3% / 3% / 3% / 3% / 3% / 3% / 3%
Radio Shack / 2% / 3% / 2% / 3% / 3% / 2% / 2% / 2%
Overstock.com / 1% / 1% / 1% / 1% / 1% / 1% / 1% / 1%
Other / 7% / 5% / 6% / 6% / 5% / 6% / 7% / 7%

On the home entertainment front, Sam's Club (10%; up 1-pt) and eBay (8%; up 1-pt) are the two retailers showing signs of momentum in entertainment and networking shopping – even as industry leader Best Buy(BBY; 40%) remains unchanged.

In other findings for Best Buy, only 7% say they’ll spend More Money there over the next 90 days compared with 18% who say Less – a net 1-pt worse than August.

Would you say you'll spend more money at Best Buy over the next 90 days compared to last year, less money, or the same amount of money at Best Buy as last year?

Current
Survey
Sep ‘09 / Previous
Survey
Aug ‘09 / Previous
Survey
Jul ‘09 / Previous
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Jun ‘09 / Previous
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May ‘09 / Previous
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Apr ‘09 / Previous
Survey
Mar ‘09
More Money Over Next 90 Days Than Last Year / 7% / 7% / 7% / 7% / 7% / 6% / 4%
Less Money Over Next 90 Days Than Last Year / 18% / 17% / 16% / 17% / 18% / 19% / 24%
Same Amount of Money as Last Year / 31% / 33% / 31% / 32% / 30% / 31% / 23%
No Money Over Next 90 Days / 37% / 36% / 37% / 37% / 36% / 35% / 43%
Don't Know / 7% / 5% / 9% / 7% / 6% / 7% / 7%

We note that Amazon (AMZN) finds itselfdown slightly from its record high of three months ago, although it’s still up 8-pts compared to one year ago.

Apple (AAPL; 11%; down 1-pt) is also showing a slight decline from their peak in August.

(F)Consumer Sentiment and Expectations

When we asked consumers about their impressions of the economy, we found that in surprising contrast to the more bullish outlook of our previous survey, consumer sentiment and expectations were actually down this month.

In your opinion, which of the following statements best describes the overall direction of the economy over the next 90 days?

Current
Survey
Sep ‘09 / Previous
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Aug ‘09 / Previous
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Jul ‘09 / Previous
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Jun ‘09 / Previous
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May ‘09 / Previous
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Apr ‘09 / Previous
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Mar ‘09
The economy is going to improve over the next 90 days / 27% / 30% / 22% / 32% / 31% / 20% / 7%
The economy is going to worsen over the next 90 days / 34% / 29% / 36% / 28% / 27% / 40% / 70%
The economy is going to remain the same over the next 90 days / 38% / 40% / 41% / 40% / 42% / 40% / 23%

Consumer Expectations. Better than a third (34%) think the overall direction of the U.S. economy is going to worsen over the next 90 days – which is 5-pts worse than August. Another 27% believe it will improve – but that’s 3-ptsworse than previously.

Are you now more or less confident in the U.S. stock market compared to 90 days ago?

Current
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Sep ‘09 / Previous
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Aug ‘09 / Previous
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Jul ‘09 / Previous
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Jun ‘09 / Previous
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May ‘09 / Previous
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Apr ‘09 / Previous
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Mar ‘09
More Confident Than 90 Days Ago / 28% / 38% / 28% / 44% / 45% / 32% / 7%
Less Confident Than 90 Days Ago / 32% / 21% / 29% / 19% / 16% / 23% / 67%
No Change / 37% / 37% / 40% / 34% / 35% / 42% / 24%
Don't Know / 3% / 3% / 3% / 3% / 4% / 2% / 1%

Also, in a sign of weaker consumer confidence, only 28% say they are More Confident in the U.S. stock market than they were 90 days ago – 10-pts worse than in August. One-in-three (32%) say they’re Less Confident – 11-pts worse.

Looking back at where you thought the economy was headed 3 months ago, would you say the current state of the economy is better than you thought it would be, about the same, or worse than you thought it would be?

Current
Survey
Sep ‘09 / Previous
Survey
Aug ‘09 / Previous
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Jul ‘09 / Previous
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Jun ‘09 / Previous
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May ‘09 / Previous
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Apr ‘09 / Previous
Survey
Mar ‘09
Better Than I thought it Would be 3 Months Ago / 30% / 36% / 26% / 40% / 41% / 18% / 2%
Worse Than I thought it Would be 3 Months Ago / 12% / 13% / 17% / 11% / 9% / 26% / 71%
About the Same / 57% / 51% / 56% / 49% / 50% / 56% / 26%

Three-in-ten (30%) now say the current state of the economy is better than they thought it would be 90 days ago – a 6-pt decline from the peak level recorded in August. Only 12% say the economy is worse than they thought it would be – a 1-pt improvement from previously.