US Recession Rears Head as Wealthy Consumers Curtail Spending

16 January 2008

NEW YORK: Affluent US consumers, traditionally responsible for bolstering the nation's economy even in times of trouble, have begun to falter in their spending, making recession a real possibility in this election year.

Joe and Jo Public continued buying through most of 2007 in the face of the subprime crisis, rising gasoline prices and stock market ups and downs.

But in December the good times stopped rolling.

Upscale retailers such as Nordstrom and Tiffany and their middle-market counterparts, such as JC Penney and Target, all reported slower growth in the holiday month or, worse, a slide in sales.

Comments Saks Fifth Avenue ceo Stephen Sadove: "People are clearly concerned that we are headed into a recession."

And Tiffany ceo Michael Kowalski says that economic anxiety among wealthier citizens is taking its toll.

"It's a reaction to the general economic uncertainty everyone is feeling. There are housing price declines and financial market instability. There is a lot of caution out there, and it's reflected in jewelry sales."

Meantime, American Express revealed that spending growth by its 52 million US cardholders fell three percentage points to 10%. The fall is the first such slowdown since the 2001 recession.

Comments Amex's Michael O'Neil: "We are seeing a correlation with housing prices. The falloff in spending is everywhere in the country, but it is greatest in those areas like South Florida and California, where home prices have fallen the most."

And it is the tightening of purse strings among these high-end consumers that most worries economists.

Official statistics suggest spending slowed late last year in markets such as automobiles, furniture, building materials and healthcare.

Not everyone, however, is predicting gloom and doom. More optimistic forecasters believe that as long as average hourly wages and salaries remain stable, recession is avoidable.

Declares Chris Varvares, president of Macroeconomic Advisers: "Incomes have managed to hold up." He adds that the available data does not support the view that a recession is inevitable.

Others believe that December's brake on shopping was a temporary blip and that spending will be sustained despite the unease.

Data sourced from International Herald-Tribune; additional content by WARC staff