My guess is that wealthy people 'feel their wealth' in terms of the stock market; if the stock market rises, so will their spending. Except...
It may be that some portion of the wealthy and the upper middle class are cutting back as a matter of life-style and cultural maturation. This may involve the very notions of (excessive) wealth and (excessive) spending becoming contemptible. Personally, i like this cultural shift -- if it is taking place -- but recognize that it is bad for the traditionally defined US economy. Keith has been returning to this notion of high-priced, innovative, attractive consumer items. He is concerned that there seem to be none on the horizon and asks whence the new high-end spending will come from. To his concern I would add the idea that even if such products were discernible, wealthy people might -- some of them -- simply have become bored with consumption and materialism. When I think of the wealthy people I know, these speculations do not seem so far fetched. The values of the US counter-cuture of the 60s may be reemerging among those who were part of that on the 60s, who then went and got jobs and had kids and have seen them through university, and who now approaching retirement are remembering the values and dreams of the counter-culture. (And, no, I don't mean drugs or those who think of, or experienced the 60s in those terms....!) Cheers, Lawry On Aug 2, 2010, at 6:55 AM, Michael Gurstein wrote: > > Who knew? > > M > > > Jeannine Aversa, AP Economics Writer, On Sunday August 1, 2010, 2:09 pm EDT > > WASHINGTON (AP) -- Wealthy Americans aren't spending so freely anymore. And > the rest of us are feeling the squeeze. > > The question is whether the rich will cut back so much as to tip the economy > back into recession -- or if they will spend at least enough to sustain the > recovery. > > The answer may not be clear for months. But their cutbacks help explain why > the rebound could be stalling. The economy grew at just a 2.4 percent rate > in the April-June quarter, the government said Friday, much slower than the > 3.7 percent rate for the first quarter. > > Economists say overall consumer spending has slowed mainly because the > richest 5 percent of Americans -- those earning at least $207,000 -- are > buying less. They account for about 14 percent of total spending. These > shoppers have retrenched as their investment values have sunk and home > values have languished. > > In addition, the most sweeping tax cuts in a generation are due to expire in > January, and lawmakers are divided over whether the government can afford to > make any of them permanent as the federal budget deficit continues to > balloon. President Barack Obama wants to allow the top rates to increase > next year for individuals making more than $200,000 and couples making more > than $250,000. The wealthy may be keeping some money on the sidelines due to > uncertainty over whether or not they will soon face higher taxes. > > The Standard & Poor's 500 stock index has tumbled 9.5 percent since its > high-water mark in late April. Home values fell 3.2 percent in the first > quarter, according to the Standard & Poor's/Case-Shiller 20-city home price > index. > > Think of the wealthy as the main engine of the economy: When they buy more, > the economy hums. When they cut back, it sputters. The rest of us mainly go > along for the ride. > > Earlier this year, gains in stock portfolios had boosted household wealth. > And the rich responded by spending freely. That raised hopes the recovery > would strengthen. > > No longer. The dizzying plunge on Wall Street in May and June and lingering > stock market turbulence have shrunk Americans' wealth. The Dow fell 10 > percent for the April-June quarter. The broader Standard & Poor's 500 index > dropped 11.9 percent. And the rich are once again more cautious about > spending, economists say. > > The affluent went back to tightening their belts in June after months of > vigorous showing. Data from MasterCard Advisors' SpendingPulse showed luxury > spending fell in June for the first time since November. The decline > followed a solid rise in sales revenue earlier in the spring. > > "It isn't a good omen for the consumer recovery, which cannot exist without > the luxury spender," said Mike Niemira, chief economist at the International > Council of Shopping Centers. > > At the same time, government reports show shoppers as a whole cut back on > their spending in both May and June. > > Companies have responded by refusing to step up hiring. The housing market > is stalling. And Americans are seeing little or no pay raises. It adds up to > a recipe for a grinding recovery to slow further. > > And it helps explain why economists expect the rebound to lose momentum in > the second half of the year. Especially if the rich don't resume bigger > spending. > > "They are the bellwether for the economy," says Mark Zandi, chief economist > at Moody's Analytics. "The fact that they turned more cautious is why the > recovery is losing momentum. If they panic again, that would be the fodder > for a double-dip recession." > > That's because whether they're saving or spending, the wealthy deliver an > outsize impact on the economy. What's not clear is whether they will remain > too nervous to spend freely again for many months. That's what happened when > the recession hit in December 2007 and then when the financial crisis > ignited in September 2008. > > As their stock holdings and home values sank, the affluent lost wealth. > Their jobs weren't safe, either. Bankers, lawyers, accountants and mortgage > brokers were among those getting pink-slipped. Those who did have jobs > feared losing them. Neither group spent much. > > Instead, Americans' savings rate spiked. And most of the increase came from > the richest 5 percent, according to research by Moody's Analytics. > > In the first quarter of this year, stocks rebounded, layoffs slowed and the > rich were spending again. > > But now the rich are building up their savings and splurging less on > discretionary items. That's starting to show up in softer sales at upscale > retailers, such as Neiman Marcus and Saks Inc. It's because people like > Angeli Gianchandani, 40, have cut back. > > She used to hit the mall every two weeks -- flicking through the racks at > Saks or Bloomingdale's and returning home with a new frock. Not anymore. > She's limiting her splurges now. The downturn in the stock market has played > a role. > > "Rather than spending more money, I'm keeping more," says Gianchandani, who > lives in New Jersey. > > Even with recent losses, household net worth has risen 13 percent from its > bottom during the recession. Net worth -- the value of assets like homes, > checking accounts and investments minus debts like mortgages and credit > cards -- grew 2.1 percent in the first quarter. > > However, net worth would have to grow 21 percent more to regain its > pre-recession peak. In the meantime, don't expect the wealthy to suddenly > start spending lavishly. > > "The affluent -- as their wealth goes down -- they'll become more and more > conservative," predicts David Levy, chairman of the Jerome Levy Forecasting > Center. > > Associated Press Writer Anne D'Innocenzio in New York contributed to this > report. > > > _______________________________________________ > Futurework mailing list > [email protected] > https://lists.uwaterloo.ca/mailman/listinfo/futurework _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework
