Aug. 27 (Bloomberg) -- Spending on items that U.S. consumers can do without or put off buying has slumped so badly that it’s bound to bounce back, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist.

As the CHART OF THE DAY shows, these so-called discretionary goods and services accounted for a smaller percentage of consumer outlays last quarter than at any other time since 1959. The proportion dropped about 0.3 percentage point, the sixth decline in seven quarters, to 15.6 percent.

The chart is similar to one created by Steven Wieting, Citigroup’s managing director of economic and market analysis, that Levkovich cited yesterday in a report. Both were based on spending figures compiled by the Commerce Department.

Consumer behavior is likely to revert to “the ‘Old’ Normal” -- spending more closely tied to income, rather than borrowing -- that prevailed during the 1950s through the 1970s, Levkovich wrote. “Some reasonable bounce is to be expected” in discretionary spending as that occurs, the report said.

“The frivolous consumer will not turn into the frugal,” he wrote, adding that pent-up demand will lead to production and employment gains.

Houses, cars and other durable goods, or items made to last more than three years, are the biggest category of discretionary spending as defined by Citigroup. The firm also included outlays on games, sports supplies, flowers, newspapers and magazines, hotel rooms, recreation and non-U.S. travel.

The “old normal” reference contrasts with the “new normal” that Pacific Investment Management Co., or Pimco, foresees. The firm expects relatively slow economic growth for the next three to five years as households and businesses retrench.

(To save a copy of the chart, click here.)

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

Last Updated: August 27, 2009 10:14 EDT