Consumers Managing Their Spending to Meet Household Expenses According to Discover U.S. Spending Monitor.

Sharp decline in confidence about personal finances and the economy during second half of October erases Index gains built since August; Monitor stands at 96.5

RIVERWOODS, Ill. -- More consumers are expecting to increase their spending next month according to the Discover([R]) U.S. Spending Monitor(SM), reversing a five-month trend that consistently showed consumers less willing to spend more. The increase in spending comes despite a strong mid-month reversal in consumer confidence about their personal finances and the economy. The decline kept the Monitor nearly on par with last month. Surveying of 15,500 random consumers (500 every night of the month) completed on Oct. 31 put the monthly index at 96.5, just .6 ahead of last month's 95.9.

The mid-month decline started the week of Oct. 17 after confidence had been rising for five consecutive weeks. During the last 14 days of the month, assessments of the economy and personal finances sharply declined, as did the number of consumers reporting they would have money left over after paying this month's debts. But budget pressures and a lack of optimism about the economy don't appear to be stopping consumers from spending more next month. However, consumers appear to be spending out of necessity rather than by choice.

More Consumers Expecting to Increase Spending in November; Many Managing Their Spending to Meet Household Expenses

In October, more than 35 percent of consumers said they expected to spend more in the next month. This was up more than six points from September's Monitor and was the first spending increase we have seen since the Monitor's May inception. The increase was across the board, among all age groups and income levels with younger adults (over 42 percent) and families (over 46 percent) showing a seven and 10 point increase, respectively from last month's survey.

But the Monitor shows evidence that basic household expenses like gas, groceries and mortgage payments may be what is driving consumers to spend more. Nearly 43 percent of the survey's respondents, compared to 35 percent last month, said they expect to spend more on household expenses. Those expecting to spend the same on household expenses dropped nearly seven points to 47 percent.

The spending reversal from the previous months coincides with October news of record oil prices and a continued housing slump.

"Last month and well into this one we saw stable readings on spending patterns, but this month we saw a remarkable turn in spending intentions nearly coincident with news of record oil prices and continued coverage of weakness in the housing and mortgage industries," said Margo Georgiadis, executive vice president and chief marketing officer for Discover Financial Services. "Consumers are adapting accordingly, and are spending more on the things they need while keeping spending in check when it comes to discretionary purchases and other expenses."

Discretionary spending like dining out and going to the movies practically remained the same as last month with 55 percent expecting to spend the same or more next month. Consumers expecting to spend more on discretionary expenses did inch up over a point from September. Nearly 56 percent of consumers are expecting to spend the same or more on major personal purchases in November, the same as October. And those expecting to spend more on home improvement expenses declined slightly to 53 percent.

Majority of Consumers Still Managing Their Budgets to Have Money Left Over, but Warning Signs Appear During Second Half of October

For the month of October, nearly 52 percent of consumers expected to have money left over after paying monthly bills. This number was virtually unchanged from September and marks the fourth straight month where a majority of consumers expected to have money left over. But warning signs appeared during the last two weeks of October as less than half of consumers polled during this time period expected to have money left over. And while those expecting an added expense or income shortfall edged up only slightly from September for a monthly average of 36 percent, the last two weeks of October showed an additional 2 point increase to more than 38 percent.

"Increased spending at the pump and on groceries may be leaving less wiggle room in consumers' budgets," said Georgiadis. "The survey showed consumers having a harder time successfully managing their budgets towards the end of October. Having money left over affects spending confidence, and in the month ahead, it will be interesting to see if consumers continue to have difficulty managing their budgets as we approach the holiday spending season."

Of the majority of consumers who did have money left over, nearly 80 percent believe they will have the same or more money left over than last month. Consumers also increased their savings for the third consecutive month as 63 percent said they were planning on saving the same or more, slightly higher than last month and a point higher than in August.

The one-point increase in savings since August comes as a growing number of consumers indicate they are closer to living on the edge. Over the last two weeks of October, there was a nearly three- point increase (from over 46 percent to over 49 percent) in the number of people who reported being able to maintain lifestyles for only up to one month if they had a sudden loss of income.

Overall Confidence in Personal Finances, Economy Unchanged in October, But Sharp Declines Mark Last Two Weeks of October

Consumers' confidence in their personal finances and the economy followed a similar path in October as their confidence in managing their budgets. During the week of Oct. 10, more than 34 percent of consumers felt their personal finances were getting better, one of the highest numbers ever reported for the Monitor. But consumers' attitudes soured during the second half of October. Confidence in personal finances dropped four points in two weeks, as only about 30 percent said they were expecting their personal finances to get better during October's final week. For the month however, over 31 percent felt their personal finances were getting better, more than a point above September's number.

Early October also showed marked improvement in consumers' attitudes about the economy with more than 21 percent saying the economy was getting better, the first time this number has been above 20 percent since July. But as October came to a close, this number dropped two points to 19 percent. For the month, more than 34 percent feel economic conditions are the same or getting better, virtually unchanged from September.

"Since the Monitor's inception, consumers have consistently been more confident in their personal finances than the economy and they continue to show a resiliency in adapting their spending behavior in light of economic changes," said Georgiadis. "Consumers are in uncharted territory as gas prices usually go down during the holidays. But so far, the unexpected expense doesn't appear to be breaking that resiliency."

About the Discover US Spending Monitor

The Discover US Spending Monitor released monthly, queried nearly 15,000 adult consumers in August 2007 about spending intentions and capacity. The survey also asked for opinions on the U.S. economy and ratings of personal finances. The survey was conducted by Rasmussen Reports, LLC, an independent survey research firm (www.rasmussenreports.com). It has a margin of error of +/- 1 percent.

About Discover Financial Services

Discover Financial Services (NYSE: DFS) operates the Discover Card with more than 50 million cardmembers, the Discover Network with millions of merchant and cash access locations, and the Goldfish credit card business in the United Kingdom. Discover Financial Services also operates the PULSE ATM/debit network, which serves more than 4,400 financial institutions and includes nearly 260,000 ATMs, as well as POS terminals, nationwide. For more information, visit www.discoverfinancial.com.