Wealthier people aren’t splurging the way they used to. ‘They are losing steam.’
The splurge is starting to sputter for people making six figures.
While rising prices have pressured many Americans since the fast uptick in inflation rates, the pinch hasn’t been as hard for higher-end households, who have continued to shell out for restaurants, fashion, travel and other purchases beyond the bare necessities.
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But a new look at consumer behavior suggests people making $100,000 and above are also beginning to cool it on their discretionary spending.
Compared with their lower-income counterparts, people making above $100,000 reported the tightest contraction in discretionary spending in the second quarter year over year, according to Morning Consult researchers.
The numbers indicate these more affluent Americans could finally be joining the swath of people who have already cut back on nonessentials.
People making at least $100,000 said in June they spent around 22% of their household budget per month on discretionary spending like travel, movies, restaurants, clothes and furniture. Last June, they said they were spending around 24%, and last July, they spent 26%, according to the data.
For people making between $50,000 and $100,000, the falloff in discretionary spending was much more modest, down 0.6% between 2023’s second quarter and 2024’s second quarter.
Discretionary spending was slightly higher — up 0.1% — for people making less than $50,000. But these consumers weren’t earmarking much for discretionary spending to begin with, the report said.
Consumers making $50,000 to $100,000, as well as those making less than $50,000, said they were spending roughly 18% of their monthly income on discretionary spending, the data showed.
During the pandemic, households built up extra savings that fueled spending. But those cash buffers have gone away, researchers say.
From the archives (May 2021): ‘Money is inherently emotional’: A post-COVID guide to splurging with ‘enlightened hedonism’
Morning Consult’s findings are part of the public-opinion and consumer-research firm’s first-ever yearly look at the U.S. economy from the perspective of people who are living in it.
The discretionary-spending downshift is “very much is flipping the script from what we were seeing a year ago,” said Kayla Bruun, a senior economist at Morning Consult.
At a time when investors are watching closely for cracks in consumer behavior, the decline in discretionary spending among upper-income households doesn’t ring any “obvious alarm bells,” Bruun said. In fact, the report’s numbers indicate this slice of consumers may be cutting back in order to reduce how debt eats into their income.
But when it comes to splurging, “it kind of seems like they are running out of steam,” she noted.
Why is this happening now? Bruun’s best guess is the wear and tear of higher interest rates for mortgages and car loans — and the threat of higher interest if these consumers carried a balance on their credit cards.
During the first quarter, Americans had $1.12 trillion in credit-card debt and delinquency rates climbed, according to the Federal Reserve Bank of New York.
When Federal Reserve officials convene next week, the question will be how much longer they’ll be willing to keep their benchmark interest rate at a two-decade high.
If higher-end customers with thirsty demand were once helping to keep prices higher across the board, Bruun noted, it’s an open question whether their softer splurging will contribute to lower prices.
Customers making at least $100,000 are behind most of the “little growth” that’s still left in general-merchandise sales, said Marshal Cohen, chief retail advisor at Circana, a consumer-research firm.
“Are they slowing down? Yes, they are,” he said. “Even the upper-income consumer is having to choose what are the products they need to buy and want to buy — and is now the time?”
The biggest pullbacks for higher-income spenders are happening in categories like consumer technology — which includes phones, televisions and tablets — along with apparel and home bedding, towels and sheets, he said.
Evidence of a slowdown in splurging can be found elsewhere this earnings season, starting with the tip-top of conspicuous consumption.
Shares of LVMH Moët Hennessy Louis Vuitton FR:MC are under pressure after the European luxury-goods maker reported a slump for second-quarter sales.
The seams are also getting stretched on Kering’s FR:KER stock price. The company, which owns haute couture brands like Gucci, Saint Laurent and Balenciaga, said it was bracing for a 30% drop in profits for the second half of the year.
On Wednesday, Lamb Weston Holdings’ stock price stumbled hard after the supplier of potato products and French fries for the restaurant industry missed profit expectations, citing a global slowdown in restaurant traffic.
Dining out was already becoming an activity reserved for people higher up the income scale, analysts have noted.
To be sure, there are counterexamples showing that the high-end household is still a big spender. After all, clear-cut, across-the-board themes are tricky to find in today’s economy.
On Wednesday afternoon, Chipotle Mexican Grill CMG beat Wall Street estimates with its second-quarter results. Analysts note the fast-casual restaurant tends to have a more upscale customer base.
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