As the credit crunch developed into a full blown recession the more wealthy people in the US began to cut back on spending and increase their saving. But as signs of a recovery emerged in 2009 those same wealthy people loosened their purse strings and bolstered the rebound with a negative savings rate.
According to the New York Times (NYT) “Late last year, the highest-income households started spending more confidently, while other consumers held back. But their confidence has since ebbed, according to retail sales reports and some economic analysis.” In the same report Moody’s chief economist Mark Zandi said “One of the reasons that the recovery has lost momentum is that high-end consumers have become more jittery and more cautious”.
With the recent stock market losses and volatility together with the Fed saying that the recovery has lost momentum with further stimulus being a possibility, the wealthy are preparing for the ever increasing risk of the dreaded ‘second dip’.
The change in attitude has been quite sharp as illustrated by this New York Times graph.
It is obviously important for retailers that consumers give their wallets a good airing from time to time. And in the US the consumer is 60% of economic activity with one third of that coming from the wealthiest 5% of the population.
Despite some property companies reporting good results and the sales of Mercs on the rise, some more high end hotel and retail chains are reporting recent slow-downs. Overall figures in June were down on May.
Throughout the whole period the less wealthy have tended to be more frugal so the rich were driving spending statistics. If these fewer people spend a lot less, then a double dip is even more of a risk.
As the NYT puts it “The worry, of course, is that consumers will stop spending because of their concerns about a slowdown, and that economic growth will slow because consumers have stopped spending.”