Spending Anxiety Pressures American Households

While Treasury Secretary Henry Paulson said that U.S. financial markets are emerging from the credit crunch, this optimistic point of view has yet to reach U.S. consumers whose anxiety over present economic conditions and personal financial well-being puts pressure on their spending intentions.

Though inching up marginally by 0.3 points, the Discover U.S. Spending Monitor – a monthly survey of the confidence and spending intentions of 15,000 consumers – saw gains mostly on expectations of increased spending. With consumers continuing to cut back on discretionary spending these expectations of increased expenditures were due primarily to the rapidly increasing cost of fuel and increased household expenses.

• The Discover Spending Monitor rose 0.3 points to 85.4 points in April from its lowest mark ever of 85.1 points reached in March. This marked a decline of 14.6 percent from the initial 100 points the monitor began at when started in May of 2007.

Likewise, the Conference Board’s Consumer Confidence Index showed signs of continued weakness as it declined for the fourth straight month from a slight uptick in December.

• The Consumer Confidence index declined by 3.6 points to 62.3 points in April, this marked a decline of 41.4 percent from its mark of 106.3 points in April of 2007.

As the economy shed another 20,000 jobs in April to end the month with an unemployment rate of 5.0 percent, many respondents expected continued weakness in both the jobs market and income growth. Signs are clear that these economic strains were felt most by lower- and middle-income consumers, who, according to Discover Monitor, planned to tighten their budgets.

Of consumers making under $40,000 a year, 57 percent planned to cut discretionary purchases, while 54 percent of consumers making between $40,000 and $75,000 planned on doing the same.

As those income figures cover over 90 percent of the U.S. population, intentions of curtailing personal spending should continue to play a prominent role for the accounts receivable management industry.

Some positive signs for the collection industry may be gleaned from the intentions of consumers regarding the use of their upcoming tax refunds and stimulus checks.

The Discover Monitor found that 62 percent of consumers expecting a tax refund planned to spend it on household expenses and paying down outstanding debt. Of the consumer expecting a stimulus check, 59 percent planned to spend that money on household expenses and paying down debt. The question for the collections industry is where repayment of delinquent debt will lie within this hierarchy.

Dimitri Michaud analyzes trends in strategic receivables management within the consumer finance sector, including the banking, credit card and mortgage markets. He conducts research, writes publications and hosts a regular blog on insideARM.com for Kaulkin Media.