Discover: Consumers Worried About Economy, Spending Stalls in February

Consumers are becoming increasingly pessimistic on the outlook of the economy and holding back on spending, according to the Discover U.S. Spending Monitor released today.

The report showed that U.S. consumers spent about the same in February as they had in January, but the month’s flat numbers were coming off two straight months of declines. Specifically, the monitor’s index moved up 0.3 points to 86.4 in February.

“Continued deterioration in consumer sentiment was seen throughout 2007 and into the first quarter of 2008, giving weight to fears of a general slowdown in consumer spending," said Dimitri Michaud, consumer finance analyst with Kaulkin Media. “As pessimistic views of personal financial health persist, I would expect that the weak growth in revolving debt reported by the Federal Reserve in December will continue as more customers rein in discretionary spending.”

The most eye-popping data came from the consumer expectations portion of the monitor. Around 70 percent of consumers said they expect economic conditions to worsen, and only 19 percent rated the current economy as good or excellent. Even among consumers with higher income ($75,000 or more), only 27 percent said the economy is good or excellent and just 14 percent said the economy is improving. In July of last year, 32 percent of high-income earners said economic conditions were improving.

Consumers are approaching discretionary expenses with caution. More than 43 percent plan to spend less in each of the discretionary categories surveyed: eating out or going to the movies, household improvements, and personal purchases like a health club membership or vacation.

Cutting back discretionary spending did not appear to help consumers’ budgets in February, as less than half said they would have money left over after paying the monthly bills. This is the third consecutive month this number has fallen below 50 percent and may correlate with continued household expense pressures.