Costco,and,Wal-Mart,Lead,Consu business, insurance Costco and Wal-Mart Lead a Consumer Revolution

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A new survey shows a continuing powerful consumer movement towards discount retailers and wholesale clubs - even as overall consumer spending is rising for the first time in nearly a year.The May 6-14 survey of 4,403 consumers focused on spending patterns for the next 90 days - and Costco (+9) and Wal-Mart (+6) once again led all other retail outlets in terms of future spending growth.This is the third consecutive survey since February that has uncovered strong results for Costco and Wal-Mart, highlighting a continued large-scale movement towards discount retailers that's being driven by high inflation and - until recently - a slower spending environment.But here's the kicker. The retail shopping transformation we're seeing doesn't appear to be a short-term phenomenon. Rather, it has the all trappings of a consumer revolution that's continuing to pick up steam.Case in point -- spending has finally begun to improve, but consumers are continuing to shun the mall retailers for the discount chains and wholesale shopping clubs.Just as importantly, while some of the news in our survey is surprisingly good -- much of it is still bad and even downright ugly.First The Good NewsFor the first time since June 2007 we're seeing a consumer spending uptick. It's only a slight one and overall spending still looks decidedly gloomy, but the 90-day outlook is not quite as terrible as it was in our previous consumer spending survey in April 2008.Two-in-five U.S. respondents (40%) now say they'll spend less over the next 90 days than they did a year ago - 2-pts better than in our April survey. Another 28% say they'll spend more - a full 3-pts better than previously.The survey also queried consumers on their impressions of current economic conditions, and once again while things still look bad, they don't appear quite as awful as they did in April:- 17% of respondents think the economy will improve in the next 90 days, which is notably 3-pts better than we saw in April. Even more striking, just 39% think the economy will worsen, a significant 11-pt improvement from a month ago.- 29% say the current state of the economy is better than they thought it would be 90 days ago, while 21% say it is worse than they thought it would be.Where is spending improving? For the first time this year there is a slight uptick in consumer electronics sales, although spending in the sector is still very sluggish. There is also a 1-pt uptick in spending on consumer durable goods.Notably, the overall uptick in consumer spending is being driven by an improved outlook among households earning more than $100,000 per year.But there are some very powerful undercurrents threatening the U.S. recovery, as the economic downside grows uglier.The Bad and The UglyFirst, the spending outlook for households earning Less than $50,000 per year is extraordinarily depressed, with 61% saying they'll spend less over the next 90 days than they did a year ago - a whopping 6-pts worse than in our April consumer spending survey.Secondly, among those who say they're spending less over the next 90 days, more than half (52%) cite Inflation as a reason - a 6-pt jump since April. Another 49% point to Higher Energy Costs - also up 6-pts from previously.Other consumer concerns have increasingly taken a back seat to inflation. Perhaps most ominously, two-thirds of consumers report that due to increased energy costs their discretionary spending will be lower for the next 90-days.Thus, we weren't at all surprised when Wal-Mart's latest earnings announcement showed better than expected 1st Quarter results -- with profits rising nearly 7%. Similarly, Costco reported an 8% rise in April same-store sales -- well ahead of the 6.1% consensus estimate.In other positive news for the two retail giants, when consumers were asked where they expect to spend their economic stimulus tax rebate checks, Wal-Mart (12%) and Costco (12%) were the two winners among the major retail outlets.So What's in Store For Consumers?In sum, for the first time since June 2007 our surveys are picking up some signs of a bottom among consumers. Although spending remains weak, the 90-day outlook is better than it was in April. There is also a notable improvement in the overall consumer outlook on the economy.Counterbalancing these positives is a continued deterioration in the economic health of lower-income consumers and a huge spike in inflation worries among virtually all consumers.According to the government's latest Consumer Price Index (CPI) figures, inflation is tame, with a less-than-expected 0.2% rise in April. But there remains a huge disconnect, between the relatively benign CPI report and the virulent spike in inflation concerns among consumers.Commentator Kevin Phillips recently derided the CPI, calling it the "great inflation hoax" and charging that the "misrepresentation of inflation, pursued statistically over the last 25 years, has been the main buttress of Washington's over-favorable and self-serving portraiture of the U.S. economy."Putting aside major doubts over the CPI's accuracy, we'll continue to keep a close watch on the effects of inflation on consumer spending. The bottom line is inflation is radically altering spending behavior and dampening hopes of a U.S. recovery for the 2nd half of the year - and beyond. Article Tags: Consumer Revolution, Consumer Spending, First Time, They'll Spend, Less Over