With optimism decreasing, consumers who participated in the January Monitor survey struck a decidedly cautious note when it came to spending intentions.

The Discover U.S. Spending Monitor recorded its third consecutive monthly decline in January, falling more than four points to 86.1 as economic concern continued to grow and post holiday spending intentions moderated. Both the economic and spending components of the index reached new lows in January as just over 70 percent of consumers now think the economy is in decline and 48 percent feel the same way about their personal finances. With optimism decreasing, consumers who participated in the January Monitor survey struck a decidedly cautious note when it came to spending intentions.

The number of people preparing to spend more next month fell to 30 percent, down a point from December and five points from October. However, there was an 8 point increase – from 43 to 51 percent – in the number who say they expect to spend the same in February. The shift seems to reflect a caution among consumers to hold the line on spending.

At the same time, consumers seem to be ratcheting down plans for spending in areas beyond necessities. Nearly half (49 percent) of the January sample said they expect to do less discretionary spending in February. That’s nearly 5 points higher than December and a full 10 points more than what consumers said last September. Discretionary spending was not the only area consumers were expecting to cut back. They also intend to spend less on household improvements, major personal purchases and savings.

The shift in spending comes as 46 percent are wrestling with the prospect of higher household expenses like gas, groceries and mortgage payments. This is down a point from December, but still 11 points higher than the 35 percent reported in September.

“Expected household expense pressures remain high with consumers seeing little relief at the gas pump or grocery store,” said Margo Georgiadis, executive vice president and chief marketing officer for Discover Financial Services. “Over the last four months, we have seen a steady increase in the number of consumers who are not only moderating their spending, but intending to spend less to compensate for household expense pressures.”

For the first time, consumers making $75,000 or more showed a significant change in spending intentions. In December, for example, 14 percent of people making more than $75,000 a year said they intended to spend more on discretionary items like entertainment and travel. In January, that number dropped to just nine percent.

The most pronounced change, however, came in spending expectations for next month. Nearly 60 percent of this income group said they would hold February spending on par with January. Last month that same sentiment was expressed by just under 45 percent.

Less than 50 percent continue to have money left over after paying monthly bills
Despite the cutback in discretionary expenses to compensate for higher household costs, more consumers are feeling a strain on their budgets. Nearly 40 percent, a new Monitor high, say they will spend to their limit in January, with nothing left over after paying their monthly bills. This is also the second consecutive month in which those who did have money left over fell under 50 percent. On the other hand, of those who say they will have money left over, 17 percent say they have more money left over this month than last, a Monitor record, and another 60 percent say they have the same as last month. There was also a drop in those expecting income shortfalls or added expenses from 40 percent to 38 percent.

“While less than half of consumers are expecting to have money left over, those who do have money left over are expecting more than the previous month,” said Georgiadis. “But with growing concerns over the economy and personal finances, the numbers show these consumers may be more intent to save their money right now rather than spend it, giving little boost to a slowing economy.”

Concerns over the economy, personal finances grow; consumers making $75,000 show increasing signs of concern
The major culprit in the decline of the Monitor for January is waning confidence in the U.S. economy. The aggressive responses by the Federal Reserve and a planned stimulus package introduced by Congress and the White House last week had no immediate affect on consumer pessimism. Last week’s Monitor numbers remained flat despite the Fed and legislative announcements intended to help stimulate the economy. The decline in attitudes occurred across every demographic: age, gender, income, marital and family status. The economic component of the Monitor, as a result, fell by nearly 8 points to a level that is 18 points lower than in October.

In January, 48 percent of consumers said that their personal finances were deteriorating, up from 45 percent the month earlier. The change coincided with a significant shift in ratings for the economy as over 41 percent of consumers described the state of U.S. economy as poor compared to only 35 percent who felt that way in December. Interestingly though, the number of consumers who rated their personal finances as good or excellent remained at 39 percent for the month.

The most dramatic shift in attitudes in January occurred among consumers with annual incomes of $75,000 or more. Their economic confidence sharply declined in January. Twenty-nine percent rated the economy as poor and only 8 percent rated it excellent. The January figures compare to 20 percent and 12 percent respectively for December.

Notable, perhaps, is the 8-point drop in confidence these high income consumers had towards their personal finances. Less than 43 percent felt their finances were getting better compared to over half last month. Those who felt their finances were getting worse rose 5 points to 31 percent.

“When there is the potential for slower growth in the economy,” Georgiadis said, “higher income groups are often slower to react, but there is no question now that all income groups are genuinely concerned about the economy and are becoming more guarded with their spending.”