Toby Smith

Consumer Spending Falls Sharply

by Toby Smith   10/20/08

The turmoil in the financial markets during the last few weeks have caused U.S. consumers to pull back sharply on spending.

Our latest ChangeWave consumer survey -- conducted in late September -- shows another major leg down for U.S. consumer spending. At the same time, confidence in the economy has dropped to exceptionally low levels.

Consumers Hunker Down

Despite an already severe 15-month contraction, U.S. consumer spending is suddenly veering south, with 52% of our 4,067 survey respondents now saying they'll spend less money during the next 90 days. That's down eight points since August. Only 18% said they'll spend more -- six points worse than in August.

Savings, Debt Reduction Leading Reasons for Change

More respondents said they are spending less because they're reducing debt (up four points to 29%) or saving more money (up five points to 26%), showing that anxiety about financial well-being is increasingly driving consumer behavior.

General inflation and higher energy costs still rank as the top two reasons consumers cited for spending less, but in one of the survey's few bright spots, their impact continues to slow for the second-consecutive survey.

U.S. Credit Crisis Impacts Consumers

The extraordinary events of the past few weeks have been well documented -- including the Lehman Brothers (LEHMQ) bankruptcy, the U.S. government takeover of Fannie Mae (FMN) and Freddie Mac (FRE), the $85 billion loan to AIG (AIG), and the government's $700 billion bailout bill to help stem the credit crisis and calm the turmoil impacting financial institutions and the stock market.