By Paul Carton
April 14, 2008

The discounters are back in vogue as inflation rears its ugly head.

That's the verdict from ChangeWave's latest consumer survey, which shows a large-scale movement to discount retailers driven by skyrocketing inflation and an overall spending environment that continues to slow.

The ChangeWave survey of 4,735 consumers, completed April 7th, looked at spending for the next 90 days.

In a clear sign the economic downturn isn't over yet, this is the third-consecutive ChangeWave survey in 2008 showing a recession in consumer spending. However, the current survey does contain one small glimmer of hope - the actual rate of spending decline appears less severe than in either of the previous two surveys.

Better than two-in-five U.S. respondents (42%) say they'll spend less over the next 90 days than they did a year ago - 3-pts worse than our February 2008 survey. Another quarter (25%) say they'll spend more - unchanged from previously.

Going forward, however, the most disconcerting finding isn't just tighter spending; it's the huge and growing toll that inflation is having on consumers.

Inflation Rears Its Ugly Head

We asked those who said they are spending less to tell us why, and Inflation was by far the greatest concern, cited by nearly half of respondents (46%; up 6-pts since February). In a related finding, 43% pointed to Higher Energy Costs as a reason they'll spend less, a whopping 11-pt jump since the previous survey.

Discounters Transform Retail Shopping

Sharply lower spending and increased inflation - coupled with deteriorating home values - are conspiring to produce an increasingly beleaguered and worried American shopper.

The survey shows half of respondents think the economy is going to worsen over the next 90 days, compared to just 14% who think it will improve.

Since November 2007 there has been a 76% jump in the percentage saying they are unsatisfied with their personal finances (from 21% to 37%).

Note that Costco and Wal-Mart were also the two big winners in our previous survey (February 2008).

On the downside, Sears (SHLD; Net Score = -10), Bed Bath & Beyond (BBBY; -10), Linens N Things (-8), and Macy's (M; -8) all show considerable weakness going forward, as do JC Penney (JCP; -6), K-Mart (SHLD; -6), and The Gap (GPS; -6).

Where Has Spending Slowed The Most?

Once again, it's spending on consumer electronics (-8 pts) that is registering the biggest slowdown of any category. In fact, it's the weakest 90-day outlook for electronics spending ever recorded in a ChangeWave survey.

Restaurant Spending (-2) also looks particularly weak going forward as does Durable Goods (-3).

To top it off, the survey points to a relatively small number of consumers using the special tax rebate check they'll be getting this spring to buy consumer goods. Rather, consumers appear far more likely to use defensive tactics - like saving money or paying off debt - during this period of economic uncertainty.

When you couple all of the above with inflation's increasingly sharp toll, there is little in the current survey to suggest the bottom has been reached in the consumer spending downturn.

Jim Woods co-wrote this article

Related ChangeWave Articles:
Yet Another Spending Downtick in ChangeWave Consumer Survey (7/22/08)
No Mas! Costco and Wal-Mart Lead a Consumer Revolution (May 27, 2008)
World Takeover By Wal-Mart and Costco (May 5, 2008)
No Signs Yet of a Bottom (March 5, 2008)