The top 20 percent of households by income are no longer feeling confident about economic conditions in the U.S. and are spending far less, according to a quarterly survey of the affluent consumers.
The Unity Marketing Luxury Consumption Index took its steepest quarterly plunge since the recession (between fourth quarter 2007 to first quarter 2008), falling 16.8 points to bottom out at 66 points. This is significantly lower than the previous period’s 82.8 points. The LCI currently stands close to the level attained at the onset of the 2007-2008 recession.
"Consumer confidence among the affluent (which account for 40 percent of consumer spending) has fallen sharply since the beginning of 2011,” said Pam Danziger, president of Unity Marketing, which runs the survey. “Not since the middle of 2009 has it been so low.”
The survey of 1,272 consumers with an average income of $301,000 and an average net worth of $856,000 was conducted July 6-13.
“If those at the top income levels feel stressed and unwilling to spend, imagine what it says about people living in middle-income households,” Danziger said. “We stand on the precipice of a double-dip recession, if the affluent consumer’s confidence doesn't turn up in the next quarter.”
Corresponding to the decline in luxury consumer confidence, the average amount spent by affluent consumers on luxury goods and services in the second quarter 2011 declined by 8.4 percent from the first quarter and dropped 18.4 percent over same quarter last year.
High net worth consumers (defined in the survey as having $1 million or more of investible assets and representing some 47 percent of those surveyed) have more to spend on luxury, as the high earners make do without. According to the survey, 42 percent of high net worth consumers expect to increase their spending on luxury goods as compared to 14 percent of high-wage earning affluents.
“The high net worth consumers in our sample feel significantly more confident about their financial status than those with lower net worth,” Danziger said.
“Market pundits have been telling us that the 2007-2009 recession has run its course, and that it was only a matter of time before this event would have diffused into the consumer economy. However, this is not the case, borne out by continued weakness in consumer sentiment,” said Tom Bodenberg, Unity Marketing's chief consumer economist. “On the other hand, the stock market has shown firm, almost counter-intuitive strength as many organizations report high earnings. The rise in the stock market translates into a rise in the investment portfolios of luxury goods consumers, which translates into greater discretionary spending, especially among the high net worth segment, as distinguished from the high earners who are holding their spending in check,” Bodenberg said.
Danziger added, “Increasingly income alone is not an accurate measure of a household's spending power. In the current economy many high-earning households are living pay check to pay check just like those in the middle-income brackets. Once the monthly expenses are met, the lower net worth affluents don't have much left over with which to indulge in luxury.”
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