Consumer Reports Index October 2009

The slide in consumer sentiment, which began in July, appears to have been stemmed in October with the index closing at 40.3 up slightly from September’s 38.1. However, this improvement is not bolstered by other measures.

The recent decline in sentiment was ushered in by a period of increased personal financial difficulties and consumer stress. Financial difficulties as measured by the Trouble Tracker have risen sharply from the low of 48.5 in May 09 to 62.3 in September and continued to rise for October (66.7) the greatest increase since July. The Consumer Stress Index stands at 63.5, on par with September and up significantly from its low in June 09 of 57.0.

Though recent losses for the Past 30-Day and Next 30-Day Retail Indices* were stemmed in September after a substantial decline in August there was no growth apparent for October.

Additionally the Job index turned downwards in October reflective of heavier job losses in September relative to the prior month.

What we are left with is a truly mixed picture. Though stability has returned to the retail index it has not been able to demonstrate growth for three straight periods. With the holiday season fast approaching this has dire implications for expectations this season.

The economy is in a precarious position balanced between recovery and further decline. Without substantial improvements in the consumer’s condition as measured by the Trouble Tracker Index, Employment Index, and Retail Indices it is doubtful that a meaningful consumer recovery will be mounted in this calendar year.

*major appliances, small appliances, home electronics, personal electronics, major yard/garden equipment

Lessons Learned - The New Thrift

The recession has led consumers to address new behaviors many of which will be with us well into the recovery.

Spending has fallen into ill repute. When asked what they would splurge on when the recession was over 17% would opt for a vacation but, surprisingly, 15% would not splurge on anything. Other splurges included – remodeling home (13%) or a new car (10%).

Some of the most common behaviors adopted by consumers to cope over the past year included:

• Purchased only what you absolutely needed (71%)
• Gone out to dinner less often (61%)
• Spent less on vacations (58%)
• Put less on credit cards (53%)
• Invested more conservatively (51%) 

Some of these will be with us well into the recovery. Consumers with these new behaviors will represent a substantial proportion of the consuming public. The behaviors that will have the greatest impact on the market after the recovery are:

• Reluctance to spend – buying only what is absolutely needed (44% of adults)
• Put less on credit cards (42% of adults)
• Invest more conservatively (38% of adults)
• Put more into savings (35% of adults)  

Consumers have become very cautious in today’s economy . If given a windfall of $10,000 nearly half (48%) would choose to use it to pay off debts (28%) or put it in savings (20%). Another 9% would invest it or save it for college expenses (9%). In total, two-thirds (66%) of consumers would use the $10,000 to address debt or savings/investment.

Method:
The Consumer Reports National Research Center conducted a telephone survey of a nationally representative probability sample of telephone households. 1,009 interviews were completed among adults aged 18+. Interviewing took place over July 30 – August 2, 2009.

The margin of error is +/- 3.2% points at a 95% confidence level