Member Article

Economic downturn hits discretionary spending

Unemployment, inflation and depressed wage growth are forcing consumers to make significant cutbacks in their discretionary spending.

In the last quarter, 7% of households saw someone lose their job, while over half felt pessimistic about their disposable income.

This has resulted in massive cutbacks across all discretionary categories, with 41% spending less on entertainment, 36% less on clothing and footwear, 28% on furniture and homeware, and 28% were cutting back on holidays.

By contrasts, half of all respondents are spending more on utility bills, 44% spending more on food food and 37% spending more on transport costs.

Paul Feechan, consumer business partner for Deloitte in the North East said: “A fierce squeeze on disposable income and high levels of macroeconomic volatility pushed the consumer sector back into recession in 2011.

“The UK has generated far higher levels of inflation over the last year than any other industrialised nation and this has hit consumer spending power.”

In the course of their Consumer Tracker study, Deloitte studied search trends which indicated that a fall in expenditure in categories such as clothing and footwear came through consumers buying cheaper items, rather than fewer items with figures indicating that volumes are flat rather than falling.

Mr Feechan continued: “Discretionary spending has been hit hard in the past three months. Consumers are adapting their behaviour to the current economic environment by trading down, staying in and postponing the purchase of big-ticket items.

“However, whilst this is negative overall, it still presents opportunities to certain companies such as those providing subscription television, DVD rentals or takeaway food.”

In the first quarter of 2012 statistics indicate that consumers intend to save any leftover disposable income rather than spend it to prepare themselves for further unforeseen expenses. However, Londoners appear to be sheltered to a degree, with only 45% feeling pessimistic about their disposable income in comparison to 55% nationally. Likewise the results showed they were feeling more positive about their job prospects.

He concluded: “Whilst some groups are demonstrating greater resilience than others, our research shows that the squeeze is being felt by the vast majority of UK consumers which presents an enormous challenge to all consumer businesses.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .