Faced with high unemployment, debt, and falling home values, many shoppers are in a state of consumer caution.

Consumers are clipping coupons, staying away from expensive name brands and only buying what they need in terms of food and clothing.

Carol Kaufman-Scarborough, a marketing professor at Rutgers University, says there is one area where spending is up. "New car spending has risen slightly because we are in the phase where year-end models are being sold."

She says discount stores have drawn a lot of new customers over the past few years. "Many of the dollar stores have increased the size of their stores and have also added the amount of items being sold there."

Shoppers have switched to generic brands nowadays to save a few bucks.

"Dollar stores are interesting because you get the frugal shopper coming in but they can find higher-end items for sale at a lower price in the store. People are turning to generic products because, of course, they are less money."

When it comes to holiday shopping, Kaufman- Scarborough says the outlook is "cautiously optimistic."

"Back to school sales weren't great and that is usually an indication that holiday sales won't be high either".

The real challenge for retailers will be to appeal to what is known as the "forever frugal consumer" who was hit hard by the economic downturn and hasn't started to spend much yet.

"I would expect to see more layaways this holiday season, more purchasing in advance, and retailers will be giving some big two-for-one discounts and sales to bring in shoppers."