For people making six figures, the splurge is beginning to slow down.
Since inflation rates rose quickly, prices have been going up for most Americans. But for wealthy families, the pinch hasn’t been as bad because they’ve kept spending money on restaurants, clothes, travel, and other things that aren’t necessary.
But a new study of consumer behavior shows that people who make $100,000 or more are also cutting back on their extra spending.
Researchers from Morning Consult found that people making more than $100,000 had the smallest drop in discretionary spending in the second quarter compared to people making less than $100,000.
Based on the numbers, these wealthier Americans may finally be joining the large group of people who have already cut back on things they don’t need.
In June, people who made at least $100,000 a year said they spent about 22% of their monthly budget on things like movies, restaurants, clothes, furniture, and trips. In June of last year, they said they were spending about 24%, and in July of that year, they said they were spending 26%.
Leisure spending dropped only 0.6% between the second quarter of 2023 and the second quarter of 2024 for people making between $50,000 and $100,000.
People who made less than $50,000 spent a little more on fun things (up 0.1%). The report said that these consumers weren’t setting aside much money for extra spending to begin with.
The data showed that people making between $50,000 and $100,000 a year and people making less than $50,000 a year said they spent about 18% of their monthly income on extras.
People saved more money during the pandemic, which they then spent. However, researchers say that those cash buffers are no longer there.
From the past (May 2021): “Money is inherently emotional”: How to spend lavishly with “enlightened hedonism” after COVID
This is the first time that public opinion and consumer research firm Morning Consult has looked at the U.S. economy from the point of view of people who live there every year.
An economist at Morning Consult named Kayla Bruun said that the drop in discretionary spending is “very much flipping the script” from what they saw a year ago.
Bruun said that the drop in spending on extras by high-income households doesn’t set off any “obvious alarm bells” at a time when investors are closely watching for signs of changes in consumer behavior. The numbers in the report actually show that this group of consumers may be cutting back to pay off their debts faster.
She said, “it kind of seems like they are running out of steam” when it comes to spending a lot of money.
Why is this taking place now? Most likely, it’s because of the wear and tear of higher interest rates on mortgages and car loans, as well as the threat of higher interest rates if these people carried a balance on their credit cards.
The Federal Reserve Bank of New York says that Americans owed $1.12 trillion in credit card debt in the first quarter, and the rate of late payments went up.
The Federal Reserve will meet next week to decide how long they’ll be willing to keep their benchmark interest rate at a level that hasn’t been seen in 20 years.
Bruun said that if high-end customers who were always buying things were once helping to keep prices high for everyone, it’s not clear if their less frequent spending will now help bring prices down.
Circana’s chief retail advisor, Marshal Cohen, said that most of the “little growth” in general merchandise sales is coming from people who make at least $100,000 a year.
“Are they moving less quickly?” He said, “Yes, they are.” “Even people with a lot of money have to decide what they need and want to buy, and is now the right time to do it?”
He said that people with higher incomes are cutting back the most on consumer technology (things like phones, TVs, and tablets) as well as clothing and home bedding (like towels and sheets).
This earnings season, there are signs of a slowdown in splurging all over, starting with the peak of showy spending.
LVMH stock The Moët Hennessy The Louis Vuitton
MC -1.03% are under pressure after a European company that makes luxury goods said that sales fell in the second quarter.
Kering’s seams are also getting swollen.
The stock price dropped by 7.47%. It said it was expecting profits to drop by 30% in the second half of the year. The company owns high-end fashion brands such as Gucci, Saint Laurent, and Balenciaga.
On Wednesday, Lamb Weston Holdings’ stock price dropped sharply after the company that sells potato products and French fries to restaurants said it wouldn’t make as much money as expected because restaurant traffic was slowing down around the world.
Analysts have pointed out that going out to eat was already becoming something that only wealthy people did.
There are, of course, examples that show the wealthy still spend a lot. For one thing, it’s hard to find clear-cut, all-encompassing themes these days.
In the afternoon of Wednesday, Chipotle Mexican Grill
Wall Street expected CMG -0.64% to do worse than it did in the second quarter. Analysts say that the fast-casual restaurant’s customers tend to be wealthier.
