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Wealthy Ramp Up Their Spending, So All Must Be Well

The economy must be better, because the rich are spending more. I have to wonder how much of the increase in spending is the result of direct benefit from financial services industry subsidies (ie, people working for large financial firms spending more because they are confident they will have a good to great bonus this year) versus indirect (people feeling better because their stock portfolios have recovered somewhat).

From Bloomberg:

Spending in the U.S. on luxury goods and services spurted 29 percent in the third quarter from the previous three months, as consumers with the highest incomes unleashed pent-up demand, according to Unity Marketing.

Spending among 1,067 consumers with average annual income of $228,800 rose to $18,826 each in the three months ended in September from $14,554 a quarter earlier….

The increase was driven by consumers with the highest income levels, starting at $250,000 a year….The wealthy curbed purchasing earlier this year because of Wall Street job cuts, lower home values and volatile financial markets.

“No question that this quarter’s spending increase is good news for luxury marketers,” Danziger said in a telephone interview today. “Many affluent consumers returned after sitting on the sidelines for a year. However, the richest are few in number, 2.5 million households, so competition will be fierce to win their attention.”…

Gains in confidence among luxury consumers, meanwhile, slowed, Unity Marketing said.

The researcher’s luxury confidence index rose 1.6 points to 75.9, after jumping 18.6 points to 74.3 in the previous quarter. That index peaked at 113.2 at the end of March 2006. Its low was 40.3 in September 2008. It started at 100 in January 2004.

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12 comments

  1. catkiller

    They are being rational. They want survive.

    The great thing about Democracy is that it does not need
    physical capital, but physical capital requires Democracy.
    The Laws of Physics requires a magnetic leading edge.
    Capital is gravitational by nature; left to its own
    devices, it would quickly become inert.

    You are watching re-coherence on the event horizon, as the
    speed of disclosure accelerates, and you haven’t seen
    anything yet.

    The oil economy went into deficit as a result of the
    Vietnam War, resulting in the oil embargo. The structural
    problem with oil as a economic hub was not addressed, the
    American Enterprise System became technically bankrupt in
    1996, and Wall Street was employed to paper over the
    problem with financial leverage.

    When the experiment to eliminate the social safety net
    failed in Argentina, the financial blackhole was born. The
    best business practices were already well embedded in the
    enterprise systems, and the historical practice of
    objective-based management accelerated the fire. It’s easy
    to deploy Pavlovian behavior modification, but difficult
    to rescind it.

    Initially, it was more expedient to pay off the few who
    knew, but, as the problem grew, the entire political
    system was corrupted. Now, that blackhole is fully loaded
    with $500T in non-performing assets, and the circuit is a
    direct short due to the latest policy response, the
    too-big-to-fail, global economy.

    It’s all in the platform. No sooner is a new platform
    deployed and they start building an inverted financial
    pyramid on top, through the tried and failed mechanism of
    holding companies. Paper profits increase as they rise,
    and they are swapped for hard currency with the
    uninitiated masses who seek something for nothing in the
    associated Ponzi pyramid. At some point, the last fool
    enters, and the entire fulcrum collapses.

    The non-performing assets are going to be burned in the
    recycling process, but you can burn with them if you want.
    Don’t expect us to jump in after you.

    What, you thought we were doing nothing while the multi-
    nationals were bleeding the system dry with nation / state
    population control measures. For every force applied ….

    Follow your talent; step up and get on the train, or be
    left behind. The choice is yours. All you need is the
    instrument in your head.

  2. Peripheral Visionary

    At some level, it may simply be a bounceback from a previous reduction in spending. For some time, being a big spender was seen as being in bad taste; even otherwise clueless celebrities were making noises about cutting back (yeah right.) But that seems to have passed, and the rich are not feeling constrained the same way they were previously.

    From a cultural perspective, I think one unexpected impact the economic downturn may have will be to remove the ironic appeal of poverty, or rather the appearance of it. As the aspiring affluent class mushroomed and even working class families moved up to middle income lifestyles, real poverty became rare, and, therefore, acquired a sort of backwards appeal. Urban music was the rage, clothing fashions trended toward understated, ultra-casual looks (culminating in the “Derelicte!” line), and people even went so far as to falsify backgrounds of having lived on “the streets” or having grown up in “the hood.”

    That may change. As poverty becomes depressingly common, and as the aspiring affluent are forced back into mundane middle-class lifestyles or (horrors!) working-class lifestyles, poverty will lose any ironic appeal it may have once had, and conspicuous affluence will be back in fashion. That hasn’t happened yet, as frugality has been the style for the last year or so, but it won’t last forever. The rich will chafe at forced frugality, and as the aspiring affluent class fades, the truly affluent will be tempted to flaunt their wealth all the more. As such, I suspect that spending trends among the wealthiest segment of society are headed up, not down.

  3. In Debt We Trust

    But the Liv-ex wine index has not really recovered:

    http://debtsofanation.blogspot.com/2009/09/debts-of-spenders-liv-ex-fine-wine.html

    Nor has the market for modern art – another sign of possible recovery.

    Meanwhile, the Financial Times is pumping its new, “How to Spend It” glossy weekend foldouts on a web site format.

    Instead, here is a better indicator of the economic prospects for most Americans, higher military recruiting rates:

    http://debtsofanation.blogspot.com/2009/10/debts-of-spenders-military-recruiting.html

  4. Michael Fiorillo

    As a hopeless loser, it makes me proud to know that I’ve contributed to increased spending by the rich, if only in my little way.

    You should feel proud, too!

  5. Moopheus

    I would like to declare a moratorium on the phrase “sitting on the sidelines” in all economics-related reporting.

  6. RedSt8r

    As confirmation that the rich are spending; a recent post by “Jim the Realtor”, (http://www.bubbleinfo.com/) noted at least two recent homebuyers in San Diego county with over $1mm, in cash, to make home purchases. Many other homebuyers had less money but still in the hundreds of thousands to make cash purchases of real estate not only in California but, as I understand, Las Vegas.

    Yes, prices are down but that’s a lot of cash to be shoving into a property that can’t easily be liquidated.

    1. Mike S

      They are paying all cash because no bank will lend to them.

      I personally know someone who was turned down for a $200,000 loan. They were going to put 900,000 down on a 1.1M house and were turned down.

  7. No Bull

    People always spend more in Q3 than Q2 – it’s the summer and that’s when folks go on vacation!

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