Economy

"New Normal" Psychology Dominates Consumer Behavior

by Dennis Jacobe, Chief Economist

Seven in 10 Americans report cutting back on how much they spend each week

PRINCETON, NJ -- Consumer psychology continues to feel the aftershocks of the financial crisis, as the "new normal" still dominates self-reported spending behaviors. While it is encouraging that 48% of Americans say they are feeling better about their financial situations and 56% say they are feeling pretty good about the amount of money they have to spend, their behavior seems to reflect something different -- a new normal. Seven in 10 consumers (70%) say they are cutting back on how much money they spend each week and 22% say they worried yesterday that they spent too much money.

Consumer Psychology: Spending Money and Financial Situation, December 2009 New Normal Behaviors: Worried That You Spent Too Much Yesterday, Cutting Back on Weekly Spending, December 2009

Consumer "new normal" behaviors have remained largely consistent since Gallup began monitoring these consumer spending perceptions and behaviors on a daily basis since June 2009. The December 2009 results reported here essentially reflect the aggregated monthly trends. The degree of consumers' optimism about their personal finances has remained about the same across age and income groups. At the same time, so have consumer "new normal" behaviors.

More Younger and Upper-Income Americans Are Feeling Better About Finances

On a positive note for the economy, 6 in 10 younger Americans (aged 18 to 29) say they are feeling better about their financial situations these days. Fifty percent of older Americans (aged 65+) also hold this view, as do 44% of those 30 to 49 and 50 to 64.

Are You Feeling Better About Your Financial Situation These Days? By Age, December 2009

"What is stunning about these results is the way even older and upper-income Americans continue to report cutting back on their spending and worrying about spending too much."

Not surprisingly given the financial crisis and the sharp recovery on Wall Street last year, upper-income Americans (those making $90,000 or more a year) are more optimistic than other Americans: 62% are feeling better about their financial situations. In sharp contrast, only 36% of lower-income consumers (those earning less than $24,000 a year) report feeling better financially in December. About half of middle-income consumers (which includes two groups -- those earning from $24,000 to less than $60,000, and those earning from $60,000 to less than $90,000) said they were feeling better about their financial situations last month.

Are You Feeling Better About Your Financial Situation These Days? By Annual Income, December 2009

More Older and Upper-Income Americans Feeling Pretty Good About Spending Money

In another good sign for the future economy, 66% of older Americans say they are feeling "pretty good" about the amount of money they have to spend. This compares with 59% of younger Americans, 52% of those 30 to 49, and 49% of those 50 to 64.

Are You Feeling Pretty Good About the Amount of Money You Have to Spend These Days? By Age, December 2009

As might be expected, consumers' feelings about their spending money tend to be directly related to income. Upper-income Americans are about twice as likely as lower-income Americans (71% versus 35%) to say they are feeling good about the money they have to spend. Fifty-four percent of those earning $24,000 to less than $60,000, and 63% of those making $60,000 to less than $90,000, feel the same way.

Are You Feeling Pretty Good About the Amount of Money You Have to Spend These Days? By Annual Income, December 2009

Fewer Older and Upper-Income Americans Cutting Back on Spending

Americans' continuing efforts to cut back on their weekly spending seems to reflect a "new normal" mindset. More than 7 in 10 consumers in the youngest three age groups say they are cutting back on how much they spend each week. A somewhat smaller 57% of seniors also say they are cutting back.

Are You Cutting Back on How Much Money You Spend Each Week? By Age, December 2009

Upper-income Americans are less likely to say they are cutting back (60%) than are lower-income Americans (78%), as well as those in the $24,000 to less than $60,000 (75%) and $60,000 to less than $90,000 (65%) groups.

Are You Cutting Back on How Much Money You Spend Each Week? By Annual Income, December 2009

Spending Worries: Diminished Among Older, Upper-Income Americans

Another potential "new normal" behavior involves Americans' continued worry that they spent too much money "yesterday." More than one in four Americans aged 18 to 29 and 30 to 49 say they worried yesterday about having spent too much money. This percentage declines to 19% among those 50 to 64 and to 14% among older Americans.

Did You Worry Yesterday That You Spent Too Much Money? By Age, December 2009

About one in five upper-income Americans worry that they spent too much. This increases to 23% among those making $60,000 to less than $90,000, 25% among those earning $24,000 to less than $60,000, and 27% among lower-income Americans.

Did You Worry Yesterday That You Spent Too Much Money? By Annual Income, December 2009

New Normal Behaviors

The greater optimism among older Americans concerning their personal finances and the money they have to spend makes sense since they are generally not as dependent on the job market as are those in other age groups. Older Americans tend to have fewer financial commitments. They also tend to be more dependent on the performance of their investment portfolios, and these have improved dramatically since the March 2009 lows.

At the other extreme, younger Americans generally tend to be more optimistic across a number of attitudinal measures. Like older Americans, they also tend to be less dependent on the job market -- many of them are students -- and tend to have fewer financial commitments.

Of course, upper-income Americans have reason to be more optimistic as they have benefited from the sharp recovery of their investment portfolios since March 2009. The second half of 2009 was much better for these Americans than the prior year.

It appears that older and younger Americans are more likely than other Americans to feel better about the money they have to spend.

What is stunning about these results is the way even older and upper-income Americans continue to report cutting back on their spending and worrying about spending too much. These groups may be cutting back less, but continue to exhibit what may be thought of as "new normal" behaviors -- spending less than they might have otherwise in the aftermath of the financial crisis.

This is consistent with Gallup's finding that consumer spending remained in a fairly tight "new normal" range during most of 2009. The pickup in spending -- particularly among upper-income consumers in December -- provides a hopeful sign that the "new normal" going forward could turn out to be somewhat higher than that experienced during most of last year.

Consumer spending remains a key driver of private-sector economic growth in the U.S. "New normal" spending implies slower economic growth than in the past. It also suggests a continuing contraction in consumer credit, and further consumer and business deleveraging. In turn, this implies additional consolidation in the retail sector, including small businesses.

Over time, consumer and business balance sheets will continue to strengthen, and spending will increase. However, in the short term, the key to increased consumer spending -- especially among younger and middle-aged, and lower- and middle-income Americans -- is an improvement in the jobs situation, particularly, the creation of full-time quality jobs. Gallup's data suggest that little or no improvement has taken place in the job market for many months. When jobs return to Main Street, average Americans will recognize that the recession is over and begin spending as they did before -- not when economists pronounce it so.

Review and export the complete daily trends on these measures: Economic Indexes; Consumer Spending; Economic Outlook; Economic Conditions; Job Market

Survey Methods

For Gallup Daily tracking, Gallup interviews approximately 1,000 national adults, aged 18 and older, each day. The Gallup "new normal" consumer spending question results are based on random samples of approximately 125 national adults, aged 18 and older, each day. Results for December are based on telephone interviews with more than 3,000 adults. For these results, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points.

Interviews are conducted with respondents on land-line telephones and cellular phones.

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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