Dollar By Dollar, Economy Eating Away At Consumer Spending

The rising cost of basic household expenses--particularly gas and food--is cutting drastically into household budgets, affecting discretionary spending on all levels--from small things like movies and dining out to larger purchases like vacations and home improvements. And things don't look to be improving anytime soon.

According to Discover Financial's "U.S. Spending Monitor," 56% of American consumers said they spent more in May than in April, and 46% said they expected to spend more in June than May. Much of that increase can be attributed to higher gas and food prices. According to the Monitor, nearly 36% of American consumers said they spent more than $200 a month on gas in May, compared with only 23% a year ago.

And consumers are not confident that high prices will abate any time soon. According to the Monitor, 65% of consumers said their expenses on basic necessities would rise in the next month, compared with a 40% response in February.

As a result consumers are cutting back. According to the Monitor, 54% of the country is cutting back on living expenses as a result of higher gas prices, compared with 45% in February. In addition, some 48% said they planned to spend less on major purchases, including summer vacations. Nearly 50% said they would put off home improvement projects, and 42% said they would have to put less into savings and investment.



"It seems clear that U.S. consumers are no longer choosing to spend more, but are being pressured to spend more due to record-high oil and food prices," said Margo Georgiadis, Discover Financial Services' chief marketing officer, in a statement. "But the cutbacks do not help a struggling economy and as gas prices continue to break records, consumers are showing signs that their budgets may be stretched a little too thin."

Not surprisingly, only 15% of consumers rated the economy good or excellent, compared with 35% a year ago. But confidence may be on the rise. While only 12% said they felt the economy was getting better, that's the first time the measure has been in double digits since February. (Yet, 72% said they felt things were getting worse.)

The brightest spot in the Riverwoods, Ill., company's monthly survey is that consumers are still managing to have money left over after paying monthly bills. According to the Spending Monitor, 51% of consumers said they still had money left over at the end of the month, compared with 55% a year ago. However, the amount left over is dropping. Of those who have money left over, only 68% said they have the same or more left over compared with the previous month, compared with 81% last September.

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