Economy

U.S. Consumer Spending Appears to Be Stabilizing

by Dennis Jacobe, Chief Economist

Still, upper-income Americans' daily spending rate remains at a 15-month low

PRINCETON, NJ -- Although Gallup's Consumer Mood Index declined by 4% and its Monitor of Consumer Spending was off by 27% in March compared to a year ago, the rate of decline moderated significantly from January and February.

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Upper-income Americans' score on the Consumer Mood Index in March was 27% worse than last year; still, average daily spending among this group declined by only 3%. Both figures represent a dramatic improvement in the rate of decline compared to January and February.

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Overall, consumer daily spending -- including that among upper-income consumers -- appears to be stabilizing, but at the lowest levels of the past 15 months, when Gallup began daily tracking of these trends.

Consumers Less Gloomy in March

The overall Consumer Mood Index (which is based on a combination of current economic conditions and economic outlook measures), now at -98, improved by 15% from February to March, and has essentially returned to its level of a year ago (-94). The mood among upper-income consumers (those with annual incomes of $90,000 or more) also improved by 15% in March, to -100. This places upper-income consumers about on par with consumers as a whole, but is considerably worse than the -79 of March 2008. Still, the year-to-year decline among upper-income consumers has narrowed considerably from its January and February levels.

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Most of the improvement in this measure has come from an improved outlook: in March, 23% of Americans said economic conditions were getting better -- up from only 16% in February and more than twice the 10% of March 2008. In sharp contrast, 59% of consumers rate current economic conditions as "poor," essentially the same as the 61% of February and much worse than the 39% of a year ago.

The pattern is similar for upper-income Americans: their outlook has improved (22% now say economic conditions are getting better, vs. 13% in February and 12% in March 2008), while their pessimism about the current economy continues (56% rate current conditions as "poor," the same as in February and nearly twice the 30% of March 2008).

Year-to-Year Spending Down Overall, Stable Among Upper-Income Group

Shopper heads to fitting room
A shopper heads to the fitting room as sales associate Brittany Pierce, left, puts away merchandise at Angelique's in Saugus, Mass. Tuesday, March 17, 2009. (AP Photo/Elise Amendola)

Americans' self-reported spending in stores, restaurants, gas stations, and online averaged $59 per day during March -- a new 15-month low, down slightly from $64 during both January and February but also down 27% from $81 in March 2008. Daily spending among upper-income consumers averaged $107 during March -- also a new low. Spending patterns among the upper-income group differ from overall consumer spending patterns, in that the short-term decline in March was larger (down 12% from $121 in February) but the long-term decline was smaller (down 3% from the $110 daily average of a year ago). Of course, this smaller year-to-year decline was at least in part the result of a sharp decline in year-ago comparables. Essentially, spending, excluding big-ticket items, appears to be stabilizing, but at its lowest levels of the past 15 months.

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Commentary

Gallup's attitudinal economic data suggest that while the overall consumer mood improved dramatically in March, the best that can be said for overall daily consumer spending is that the rate of decline relative to a year ago has moderated substantially and may be stabilizing at a 15-month low. Although all the fallout from the plummeting economy of the past six months has not been fully realized, a stabilization of consumer spending would suggest the downturn in the economy is bottoming out.

In this regard, upper-income consumer spending is particularly important. Given their comparatively high levels of discretionary income, these consumers have a disproportionately strong impact on overall spending. Further, they are the key to recovery for many upscale retailers and other businesses that serve the affluent market.

The fact that consumer spending, particularly among upper-income Americans, is merely stabilizing and not increasing may be disappointing to some, given the recent sharp improvements in consumer mood and the surge of the stock market. But it is far better than the virtual free-fall in consumer spending of January and February that took place after a dismal holiday period. And the closing of the year-to-year consumer spending gap provides hope for spending improvement even if the gap is only maintained in the months ahead.

Still, this recession is different from those of the past, and the March improvement in consumer mood is built more on hope than on an assessment of the current economic reality. It remains possible that increasing unemployment rates and the need for consumers and businesses to rebuild their balance sheets will end up producing another leg down for the U.S. economy. That is the danger consumers and management need to consider on a contingency planning basis.

Survey Methods

Gallup's Consumer Mood Index and Monitor of Consumer Spending are based on aggregated interviews with a nationally representative sample of more than 12,000 adults, aged 18 and older, each month, as part of Gallup Poll Daily tracking. For results based on these samples, the maximum margin of sampling error is ±1 percentage point.

Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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