Major Pullback in U.S. Consumer Spending for July

Last month we reported that the dip we were seeing in U.S. consumer spending heading into the summer was “the most significant of the past eleven months.” Among the major retailers, only Costco was still showing real momentum.

Now ChangeWave’s latest survey of 2,795 consumers points to a major pullback in U.S. spending behavior going forward, coupled with a continued deterioration in consumer sentiment and expectations.

The survey, completed July 8, also shows the spending slowdown is hitting travel/vacations, restaurants, electronics and consumer durable goods. Moreover, key discount retailers Costco, Target, and Wal-Mart are showing weakness, and we’re seeing a downtick for Macy’s.

July also looks to be a tough month for Best Buy on the Home Entertainment front, with the industry giant experiencing its weakest visibility of the past 17 months.

It’s too early to know whether the current consumer decline is just a temporary bump in the road. It remains altogether possible that consumers will get over their funk and ratchet up spending for August and the June/July pullback will prove short lived. But right now things are looking a lot tougher for consumers than they did just a couple of months ago.

Major Pullback in July Consumer Spending

One-in-three respondents (32%) say they'll spend less over the next 90 days than they did a year ago – 6-pts worse than in our June survey. Just 30% say they'll spend more – down 8-pts from previously.

As the following chart shows, the net 14-pt pullback looks more like the downturns we used to see in the depths of the recession. But unlike back then, this downtick is occurring after an extended period of steady improvement and may well prove to be temporary – with spending returning to growth mode by August.

Of particular concern, however, the current spending outlook has declined across all income levels, with lower income households (under $50,000 per year) particularly hard hit.

Individual Spending Categories. The survey also shows the spending slowdown is occurring across multiple categories.

Travel/Vacation has registered the biggest pullback of any category, with just 30% of respondents saying they’ll spend more on Travel/Vacation in the next 90 days compared to 20% less – a net 10-pt decline since June that is worse than the 6-pt drop of a year ago.

Restaurant spending also looks particularly hard hit going forward, with only 12% saying they’ll spend more and 28% less – a net 7-pt decline since June.

Consumer Electronics spending continues to soften, with just 15% saying they’ll spend more on electronics compared to 33% less, a net 4-pt decline.

There are also signs of weakness in spending on Consumer Durable Goods – down a net 4-pts since previously.

Retailer Trends

The July survey shows that it’s the discount retailers who are currently being hardest hit.

After showing momentum in our previous survey, Costco (COST) has experienced its most significant decline in six months – a 5-pt drop since June. And for the second consecutive month, Wal-Mart (WMT) is showing a decline – down 3-pts since previously.

In addition, Target (TGT) has fallen by a net 4-pts.

And we note that among the major retailers, Macy's (M; -3 pts) is also showing weakness.

Home Entertainment. Sluggish consumers are also hurting the large electronics retailers. Only 34% of respondents say they’ll shop at Best Buy (BBY) for their home entertainment and computer networking products over the next 90 days – down 4-pts to their lowest level of the past 17 months.

Amazon (AMZN; 26%) has also dropped 4-pts in terms of home entertainment shopping and is now 10-pts below their December 2009 peak, while Costco (20%) has dropped 2-pts.

Consumer Sentiment and Expectations

We asked consumers about their impressions of the economy and found consumer sentiment and expectations have continued to decline from the already low levels recorded in June.

Consumer Expectations. More than half of respondents (57%) believe the overall direction of the U.S. economy is going to worsen over the next 90 days – 15-pts worse than a month ago. Only 12% think it will improve – a decline of 9-pts to the lowest level in 16 months.

The Breakdown in Stock Market Confidence. A total of 71% say they’re Less Confident in the U.S. stock market than they were 90 days ago – 9-pts worse than previously. Only 4% say they are More Confident – 7-pts worse than previously. These are the worst levels recorded in the nearly two years that we’ve tracked consumer confidence in the stock market.

We also asked respondents about their investing plans going forward, and found the rate of money outflow from U.S. Stocks (-18; down 9-pts) has accelerated since our June survey.