Will Consumers Keep Spending?

For some time now, the conventional wisdom has been that rising mortgage payments and falling real estate prices are slowing consumer spending.

But despite these pressures, ChangeWave consumer surveys in March, May and June, actually showed spending increasing for much of 2007, and reports from the Commerce Department confirmed these increases.

Our August consumer spending survey, however, revealed a slight dip in the spending growth rate -- but the reasons we found are quite different from what many experts think.

Overall Spending Dip

Of 3,665 survey respondents, 40% reported that they'll be spending more during the next 90 days compared to a year ago -- down three points from our previous survey in June. Another 23% said they'll spend less -- one point worse than previously.

Nevertheless, overall spending growth is still better than in August 2006 when only 38% of respondents said they'd spend more, and 23% said they'd spend less.

Not unexpectedly, households earning less than $50,000 per year reported to be cutting back the most -- only one-in-three respondents in that group said they'll spend more.

However, we came across a surprising result when we asked the 23% of respondents who said they'd be spending less to tell us why:

For those who will be spending less than last year, what are the most important reasons why?

More than half said they'll be spending less due to cost of living and inflation issues, which is clearly the Fed's greatest current and ongoing concern.

Improving personal finances also ranked high on the list of reasons for spending less.

But, in the biggest surprise of the survey, only 11% of respondents blamed mortgage and home equity costs as the key reason for spending less going forward.

The Resiliency of the Consumer

So, despite all of the ugliness of the subprime mortgage shakeout -- with its accompanying rises in bankruptcies and foreclosures -- our latest ChangeWave survey results showed consumer spending has taken only a very slight hit so far.

We'll continue to watch this very closely, but it's clear we are witnessing the extraordinary resiliency of the consumer marketplace.

"We have not had a reduction in consumer spending in any year since 1959 -- and then just barely," ChangeWave founder Toby Smith said. "Yes, we have a problem with some bad mortgages, but it is a relatively minute one in the total financial world. Let's keep perspective. We are living in the greatest global economic boom in history."

Take another look at the above consumer spending findings if you want to see exactly where Toby is coming from.

--------------------------------------------------------------------------------------------------------------------------------- This article summarizes the results of a recent ChangeWave Alliance survey. The Alliance is a research network of 10,000 business, technology and medical professionals who spend their everyday lives working on the front line of technological change. For more info on the ChangeWave Alliance, or if you are interested in joining, please click here.