ChangeWave Research: Consumer Spending for the Fall

ChangeWave Research Report:

Consumer Spending for the Fall

Slowdown in Growth Rate of Consumer Spending – Restaurant and Entertainment Spending Heads South

Overview

During the week of Aug. 22 – 26, 2005, we surveyed Alliance members to get an in-depth look at consumer spending for the fall – including the “Back to School” season. We also focused on the impact of rising gas & energy prices. A total of 1,638 members participated.

Bottom Line: The survey findings point to a slowdown in the rate of growth of Consumer Spending – the first downturn we’ve picked up since October 2004. Currently, it’s occurring primarily among respondents who have a total household income less than $50,000 per year. We note that the median U.S. household income level in 2004 was $44,389.

Overall, slightly more than half of our respondents say that rising gasoline prices are affecting how much they drive (4% “Very Much,” 48% “Only Modestly”). And one-in-three (33%) say rising energy costs are effecting their spending (5% “Significantly,” 28% “Modestly”) – a slightly greater percentage than when we asked this back in October 2004.

Here’s a further look at key findings:

·  Consumer Spending Growth Rate Slows – First Time in 10 Months. A total of 44% of respondents say they will spend more over the next 90 days compared to one year ago, down 3 points from June 2005. Another 19% say they will spend less – 1 point better than previously. We note that only 30% of members whose household income is below $50,000 per year say they’ll be spending more – down 13 pts in just 3 months.

·  Restaurant and Entertainment Spending Slows. On the down side, Restaurant and Entertainment spending is the area respondents say they’re cutting back on most over the next 90 days (Net Difference Score = -12). Travel/Vacation spending also declined, mostly due to seasonal factors (the survey was finished just before Hurricane Katrina).

·  Consumer Electronics Spending Slows. Spending on Consumer Electronics (Net Difference Score = -6) looks slower over the next 90 days than it did in our June survey.

·  But Household Repairs/Improvements Remains on Top. Spending on Household Repairs/Improvements (Net Difference Score = +30) remains the top category respondents say they’ll be spending more on over the next 90 days. Nonetheless, even this category declined 3-points from the previous survey (June 2005).

·  High Gas Prices Affecting Driving. Slightly more than half of respondents say that rising gasoline prices are affecting how much they drive (4% “Very Much,” 48% “Only Modestly”). Importantly, this is 12 pts more than the last time we asked this question in July 2004. Also, among members with a household income less than $50,000, nearly three-in-four (72%) say rising gas prices are affecting how much they drive.

·  Overall Effects of Rising Energy Costs. One-third of respondents (33%) say rising energy costs are effecting their spending (5% “Significantly,” 28% “Modestly”) – a slightly higher percentage than when we last asked this question in October 2004.

·  Growing Interest in Solar Power. While just 6% of respondents say they’re considering having a solar power system installed in their home over the next 12 months, another 37% report they will seriously consider it for the future. The top three types of solar power being considered are Hot Water Heating (31%), Photovoltaic (30%) and Roof Solar Panels (13%).

Summary of Key Findings

The ChangeWave Alliance is a group of 5,000 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.ChangeWave.com

Table of Contents

Summary of Key Findings 2

The Findings 4

(A) Consumer Spending Patterns 4

(B) Impact of Rising Energy and Gas Prices 7

ChangeWave Research Methodology 10

About ChangeWave Research 11


I. The Findings

Introduction

Total Respondents (n=1,638)

(A) Consumer Spending Patterns

(1) Question Asked: Thinking about your overall spending patterns compared to this time a year ago, 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 Aug ‘05 / Previous Survey Jun ‘05 / Previous
Survey
Mar ‘05 / Previous
Survey
Jan ‘05 / Previous Survey Oct’ 04 / Previous Survey Aug ‘04
More Spending Than Last Year / 44% / 47% / 44% / 36% / 33% / 40%
Less Spending Than Last Year / 19% / 20% / 23% / 21% / 20% / 21%
Spending Will Remain the Same as Last Year / 35% / 32% / 31% / 40% / 46% / 38%
Don't Know/No Answer / 2% / 1% / 1% / 2% / 1% / 1%

Current Survey (August 2005) – Breakdown by Income Levels

Total / Less
Than
$50,000 / $50,001-$75,000 / $75,001-
$100,000 / $100,001-
$125,000 / $125,001-
$150,000 / Greater
Than
$150,000
More Spending Than Last Year / 44% / 30% / 43% / 46% / 43% / 51% / 44%
Less Spending Than Last Year / 19% / 33% / 18% / 20% / 18% / 14% / 18%
Spending Will Remain the Same as Last Year / 35% / 34% / 37% / 32% / 37% / 33% / 37%

Previous Survey (June 2005) – Breakdown by Income Levels

Total / Less
Than
$50,000 / $50,001-$75,000 / $75,001-
$100,000 / $100,001-
$125,000 / $125,001-
$150,000 / Greater
Than
$150,000
More Spending Than Last Year / 47% / 43% / 43% / 42% / 47% / 54% / 49%
Less Spending Than Last Year / 20% / 32% / 23% / 19% / 16% / 17% / 17%
Spending Will Remain the Same as Last Year / 32% / 25% / 32% / 38% / 35% / 28% / 33%


Consumer Spending Growth Rate Slows – First Time in 10 Months. A total of 44% of respondents say they will spend more over the next 90 days compared to one year ago, down 3 points from June 2005. Another 19% say they will spend less – 1 point better than previously. We note that only 30% of members whose household income is below $50,000 per year say they’ll be spending more – down 13 pts in just 3 months.

(2) Question Asked: Which of the following consumer items will you be spending more money on over the next 90 days than last year? (Check All That Apply)

Current Survey Aug ‘05 / Previous
Survey Jun ‘05 / Previous
Survey
Mar ‘05 / Previous
Survey
Jan ‘05 / Previous Survey Oct’ 04 / Previous Survey Aug ‘04
Household Repairs/Improvements / 45% / 48% / 46% / 40% / 34% / 41%
Travel/Vacation / 34% / 48% / 38% / 32% / 37% / 36%
Consumer Electronics / 31% / 34% / 35% / 27% / 46% / 30%
Durable Goods for the Home / 24% / 22% / 22% / 22% / 25% / 21%
Children's Services (e.g. camp, education, lessons, other activities) / 18% / 15% / 13% / 14% / 13% / 18%
Restaurants/Everyday Entertainment / 16% / 21% / 19% / 18% / 25% / 18%
Other Services (e.g. adult ed, health, fitness activities) / 11% / 10% / 11% / 14% / 9% / 12%
Automobile Purchase / 10% / 11% / 10% / 9% / 10% / 9%

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

Current Survey Aug ‘05 / Previous
Survey Jun ‘05 / Previous
Survey
Mar ‘05 / Previous
Survey
Jan ‘05 / Previous Survey Oct’ 04 / Previous Survey Aug ‘04
Consumer Electronics / 30% / 27% / 30% / 30% / 26% / 27%
Automobile Purchase / 28% / 28% / 29% / 26% / 31% / 29%
Travel/Vacation / 28% / 21% / 24% / 24% / 30% / 26%
Restaurants/Everyday Entertainment / 28% / 21% / 25% / 22% / 23% / 24%
Durable Goods for the Home / 26% / 27% / 26% / 21% / 28% / 23%
Household Repairs/Improvements / 15% / 16% / 15% / 15% / 20% / 15%
Other Services (e.g. adult education, health and fitness activities) / 11% / 12% / 12% / 10% / 12% / 11%
Children's Services (e.g. camp, education, lessons, other activities) / 9% / 11% / 11% / 9% / 14% / 10%

Net Difference Score – Current Survey (August 2005)

Spending More Next
90 Days / Spending Less Next
90 Days / Net Difference Score
Household Repairs/Improvements / 45% / 15% / +30
Children's Services (e.g. camp, education, lessons, other activities) / 18% / 9% / +9
Travel/Vacation / 34% / 28% / +6
Consumer Electronics / 31% / 30% / +1
Other Services (e.g. adult education, health and fitness activities) / 11% / 11% / 0
Durable Goods for the Home / 24% / 26% / -2
Restaurants/Everyday Entertainment / 16% / 28% / -12
Automobile Purchase / 10% / 28% / -18

Change in Net Difference Score – Current Survey (August 2005) vs. Previous Survey (June 2005)

Net Difference Score Current Survey (August 2005) / Net Difference Score Previous Survey (June 2005) / Change in Net Difference Score
Children's Services (e.g. camp, education, lessons, other activities) / +9 / +4 / +5
Durable Goods for the Home / -2 / -5 / +3
Other Services (e.g. adult education, health and fitness activities) / 0 / -2 / +2
Automobile Purchase / -18 / -17 / -1
Household Repairs/Improvements / +30 / +32 / -2
Consumer Electronics / +1 / +7 / -6
Restaurants/Everyday Entertainment / -12 / 0 / -12
Travel/Vacation / +6 / +27 / -21

Restaurant and Entertainment Spending Slows. On the down side, Restaurant and Entertainment spending is the area respondents say they’re cutting back on most over the next 90 days (Net Difference Score = -12). Travel/Vacation spending also declined, mostly due to seasonal factors (the survey was finished just before Hurricane Katrina).

Consumer Electronics Spending Slows. Spending on Consumer Electronics (Net Difference Score = -6) looks slower over the next 90 days than it did in our June survey.

But Household Repairs/Improvements Remains on Top. Spending on Household Repairs/ Improvements (Net Difference Score = +30) remains the top category respondents say they’ll be spending more on over the next 90 days. Nonetheless, even this category is down 3 points from the previous survey (June 2005).

(B) Impact of Rising Energy and Gas Prices

(1) Question Asked: What effect – if any – are increased energy costs (i.e., gasoline, heating oil, natural gas, electricity) having on your spending plans for the next 90 days?

Current Survey Aug ‘05 / Previous Survey Oct ‘04
Significant Effect - My Spending Will Be Much Lower Because of Increased Energy Costs / 5% / 3%
Modest Effect - My Spending Will Be Somewhat Lower Because of Increased Energy Costs / 28% / 27%
No Effect on My Spending Plans / 63% / 67%
Don't Know / 4% / 3%

*In the previous survey the question asked was “What effect – if any – are increased energy costs (i.e., gasoline, heating oil, natural gas, electricity) having on your Holiday Spending plans”

Current Survey (August 2005) – Breakdown by Income Levels

Total / Less
Than
$50,000 / $50,001-$75,000 / $75,001-
$100,000 / $100,001-
$125,000 / $125,001-
$150,000 / Greater
Than
$150,000
Significant Effect - My Spending Will Be Much Lower Because of Increased Energy Costs / 5% / 24% / 6% / 5% / 3% / 4% / 3%
Modest Effect - My Spending Will Be Somewhat Lower Because of Increased Energy Costs / 28% / 24% / 36% / 38% / 32% / 23% / 18%
No Effect on My Spending Plans / 63% / 47% / 51% / 51% / 60% / 71% / 76%
Don't Know / 4% / 4% / 7% / 5% / 4% / 2% / 2%

Overall Effects of Rising Energy Costs. One-third of respondents (33%) say rising energy costs are effecting their spending (5% “Significantly,” 28% “Modestly”) – a slightly higher percentage than when we last asked this question in October 2004.


(2) Question Asked: Please elaborate on how you'll spend differently over the next 90 days. What types of items and services will you be cutting back on? (n=387)

Restaurants / 37%
Trips/Travel/Vacation / 26%
Entertainment / 25%
Less Driving / 23%
Discretionary/Everyday Spending / 13%
Clothes / 5%
Electronics/Computers / 4%
Household Items / 3%
Energy / 3%
Everything / 4%
Other / 6%

(3) Question Asked: Has the rise in gasoline prices affected how much you drive?

Current Survey Aug ‘05 / Previous Survey Jul ‘04
Yes, Very Much / 4% / 4%
Yes, But Only Modestly / 48% / 36%
No, Not At All / 46% / 59%
No Answer / 1% / 2%

Current Survey (August 2005) – Breakdown by Income Levels

Total / Less
Than
$50,000 / $50,001-$75,000 / $75,001-
$100,000 / $100,001-
$125,000 / $125,001-
$150,000 / Greater
Than
$150,000
Yes, Very Much / 4% / 16% / 6% / 5% / 4% / 5% / 2%
Yes, But Only Modestly / 48% / 56% / 60% / 55% / 46% / 43% / 40%
No, Not At All / 46% / 27% / 33% / 39% / 50% / 51% / 56%

High Gas Prices Affecting Driving. Slightly more than half of respondents say that rising gasoline prices are affecting how much they drive (4% “Very Much,” 48% “Only Modestly”). Importantly, this is 12 pts more than the last time we asked this question in July 2004. Also, among members with a household income of less than $50, 000, nearly three-in-four (72%) sat rising gas prices are affecting how much they drive.


(4) Question Asked: Congress recently approved an energy bill, which includes tax credits of up to $2,000 for homeowners who install solar power systems (i.e., photovoltaic) for their homes. Are you considering having any solar power systems (i.e., photovoltaic) installed in your home over the next 12 months?