A few years ago, Alesia Peterke of Pleasanton, California, thought nothing of plunking down $275 for a Coach handbag.
“I would have wanted to keep up with the Joneses,” Peterke, 52, says.
Now, she buys $60 purses that last just as long, hunts for bargains and prefers to spend money on experiences that create lifelong memories, such as trips to see relatives.
“As a family, we have the things we need and want,” Peterke says. “We will continue to spend, but we are smarter consumers expecting high quality for our money.”
Higher-income Americans are reining in their spending for myriad reasons, including a volatile stock market, shoppers’ fatigue, the new tax law and modest wage increases. The trend is noteworthy because the top 10% of households by income make up nearly half of all consumption.
Overall consumer spending growth, in turn, is slowing at a critical period for the economy. Many analysts are looking to households to prop up growth as business investment slumps amid a trade war that poses the risk of a recession by next year.
Spending by the top 10% fell 1% in the second quarter from the same period last year, according to an analysis of Federal Reserve data by Moody’s Analytics. And a four-quarter average of outlays by the high earners has slipped on an annual basis the past three quarters, marking the first such declines since the Great Recession of 2007-09.
“High-income consumers have been the Atlas holding up the U.S. and global economies,” says Mark Zandi, chief economist at Moody’s analytics. “But they appear tired, and if they founder, so too will the economic expansion.”
Consumer spending more broadly is still growing solidly, but at a slower pace. Household outlays increased 2.9% at an annual rate in the third quarter, down from a robust 4.6% early in the year. Capital Economics expects purchases to increase by 2% to 2.5% in the current quarter.
The downshift for affluent Americans is highlighted by the mixed performance of some luxury brands.
Tiffany’s revenue in the Americas fell 4% in the second quarter. Luxury sales more generally have continued to grow but largely because of an emerging crop of wealthy Chinese shoppers and “aspirational” middle-class Americans who seek the status of luxury brands, says Marie Driscoll, managing director of luxury and fashion for Coresight Research. Luxury spending by affluent households has been flat, she says.
Here’s a look at why well-heeled shoppers are pulling back: