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Sorry, The Upper Class Will Not Pull The US Economy Out Of The Depression

Tyler Durden's picture





 

Several months ago Zero Hedge did an exhaustive study of relative contributions to GDP by consumer class decile: the conclusion was that even though it accounts for a mere 10% of US population, the ultra rich are responsible for over 40% of consumption in the US (yes David Bianco, that ever critical 70% of GDP, get over it). Of course, they end up being taxed for the privilege of consuming so much, but that's irrelevant for this post. What is, however, is a recent GALLUP poll which proves that Rosenberg's theme of "new normal frugality" is now entrenched in the consumer's psyche, and not just among the lower- and middle-classed, but, most surprisingly, in the higher income brackets as well. In November the richest Americans reported a 14% drop in average daily discretionary spending to $117. This is a far cry, and 30% off, from the peak of $185/day report in April of 2008. It also represents a disappointing downward inflection from October 2009, when hopes prevailed that upper income spending would once again take off courtesy of 33 Liberty.

More from Gallup:

In a sign that the new normal in consumer spending continues unabated,
upper-income Americans' self-reported average daily spending in stores,
restaurants, gas stations, and online fell 14% in November, reverting
to its relatively tight ($107 to $121) pre-October 2009 average monthly
range. Middle- and lower-income consumer discretionary spending
increased by 7% last month but remained in its tight 2009 average
monthly range of $52 to $61. Still, consumer spending by both income
groups continues to trail year-ago levels by 20%, even as those
comparables have gotten easier to match -- possibly dashing hopes that
upscale retailers and big-ticket-item sales will do better this year.

What is less surprising is that fragility is definitely the name of the game in the formerly "aspirational consumer" category:

Consumers' self-reported spending on discretionary items among middle-
and lower-income Americans (those making less than $90,000 a year) was
down 20% in November from the depressed spending levels of a year ago.
As expected, this percentage decline from November 2008 is more modest
than the year-over-year declines of earlier in the year as year-ago
comparables have become easier to match. Although average daily
spending among this group was technically at its high for 2009 last
month, it continues to reflect a "new normal" spending pattern, staying
within a tight $4 spending range that has persisted during the past
four months.

 

The upper-class consumption inflection point happened in November...And not in the direction the administration desired:

Spending among upper-income consumers (those making at least $90,000 a
year) had reached its highest level of 2009 in October and had closed
the gap to -6% compared to the same month a year ago. The hope was that
the surge on Wall Street and the seeming stabilization of housing
values had encouraged some upper-income consumers to abandon the 2009
spending new normal. November's results dashed these hopes, as
upper-income consumers joined their middle- and lower-income
counterparts in spending 20% less than they had during the financial
crisis days of 2008 and returning to the relatively tight 2009 daily
spending range for this group prior to October.

Stratified by age groups, the biggest consumption drop happened in the traditionally richest age groups: the 50+ category.

Consumers in the child-rearing ages of 30 to 49 showed the smallest
November-over-November discretionary spending decline at 15% --
possibly because they have the least ability to downshift their
spending as the holidays approach. Younger consumers aged 18 to 29
experienced a larger decline of 23%. Those 50 to 64 years of age
reduced their year-over-year spending by 29%, while those 65 or older
had a decline of 32%. Overall, those in the 30 to 49 age group had the
highest average daily spending level in November ($81), while those 65
or older spent the least per day ($52).

 

Gallup essentially repeats Rosie's new frugal thesis word for word in their summary observations:

Overall self-reported consumer discretionary spending has been
essentially flat on a monthly basis throughout 2009 even when broken
out by age, income, region, and gender. It has also been down
significantly compared to the same months in 2008. The year-over-year
differences have declined somewhat during recent months, but much of
this closure in the 2008-2009 spending gap is a result of the easier
spending comparables from last year's financial crisis.

Gallup's analysis of the relationship between job creation and
consumer spending suggests that these lower spending levels are
attributable, at least in part, to today's dismal job-market
conditions. Further findings show that the current lack of job creation
has its greatest impact on middle- and lower-income consumer spending.

In this regard, October upper-income spending provided new hope that
the surge in the stock market and the increased stability of housing
prices might be encouraging these consumers to break out of their
year-long and relatively tight spending range. Instead, November's
results show that upper-income spending reverted back to its new normal
range.
Given the greater discretionary spending flexibility of
upper-income Americans, this reversion to the pre-October spending
range tends to give added face-validity to the argument that a consumer
spending new normal exists -- independent of the job situation -- as
2010 approaches.

On a national level, the spending new normal suggests slower
economic growth than otherwise might be expected in the years ahead. In
turn, reduced consumer spending will complicate the job-creation
problem, not to mention fiscal and monetary policies. For example, one
might argue that the federal government and monetary authorities (the
Fed) need to take emergency actions to offset a temporary spending
shortfall due to job losses, but the same arguments do not necessarily
hold true when the spending reduction results from a new normal
spending pattern -- generally speaking, the private sector needs to
adjust to such changes in consumer behaviors.

For retailers, small businesses, and the companies that supply and
support them, a new normal spending pattern can mean complex changes
involving downscaling, upselling (people taking advantage to buy
upscale for less), inventory management, and people-related
adjustments.
The U.S. economy is designed to allow the private sector
to make such adjustments in order to optimize performance when faced
with such a rapidly changing business environment. Of course, the same
does not apply to maintaining the social safety net, particularly in
the face of double-digit unemployment and even higher underemployment.

While the spending "new normal" may not be good for the larger
economy in the short-term, it may be seen as a strong positive for
individual consumer households. Consumers, like their business and
banking counterparts, would be well-served to de-leverage by spending
less, saving more, reducing their use of credit, and thereby
strengthening their personal balance sheets. While this may not provide
the immediate-term returns to the economy of the over-leveraging of
recent years, a financially stronger U.S. consumer implies only good
things for the longer-term well being of both the U.S. and global
economies.

We look forward to how tomorrow's retail numbers are spun by the appropriate authorities (and Merrill Lynch) in hope of preventing the broader population from realizing that the old consumer spending patterns are as over as securitization.

h/t Geoffrey Batt

 


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Thu, 12/10/2009 - 17:15 | Link to Comment anarkst
anarkst's picture

One does not spend oneself into wealth.

Thu, 12/10/2009 - 18:04 | Link to Comment VegasBD
VegasBD's picture

One does when one studies obamanomics

Thu, 12/10/2009 - 18:18 | Link to Comment carbonmutant
carbonmutant's picture

...or tax oneself into prosperity

Thu, 12/10/2009 - 20:15 | Link to Comment Let them all fail
Let them all fail's picture

Unless you work on Wall Street of course, but most wealthy families are very conscious about the economy and trying to be (relatively) frugal

Thu, 12/10/2009 - 17:16 | Link to Comment AN0NYM0US
AN0NYM0US's picture

And we thought CNBS was bad

the truth --  initial jobless claims ended five weeks of improvement, rising 17,000 in the Dec. 5 week to 474,000 for the highest level since mid-November.

and from Bloomberg

Initial Jobless Claims Average in U.S. Falls to One-Year Low

Dec. 10 (Bloomberg) --  Fewer Americans on average filed claims for jobless benefits during the past four weeks, signaling companies are gaining confidence as the economy recovers.

The four-week average declined to a one-year low of 473,750

and from Bloomberg last week

U.S. Jobless Claims Unexpectedly Fall to One-Year Low

Dec. 3 (Bloomberg) -- The number of Americans filing first- time claims for unemployment benefits unexpectedly fell last week to the lowest level in more than a year, a sign companies are holding on to workers as the economic recovery unfolds.

Initial jobless claims declined by 5,000 to 457,000 in the week ended Nov. 28,

Thu, 12/10/2009 - 17:37 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

Bloomberg gets worse by the day, I swear they are worse than CNBS at this point, their TV is worse than they terminal.

Thu, 12/10/2009 - 20:29 | Link to Comment Rainman
Rainman's picture

I agree. Bloom was my last stop in the vision world . Nobody is going to the deep end of the pool. Money is tight, so they just copy and paste. I buzz their site briefly now, too.

ZH is the only game left to get everywhere you want to go.

Fri, 12/11/2009 - 00:35 | Link to Comment Vulgus Porkulus
Vulgus Porkulus's picture

I went from watching CNBC to CNBC (mute) to Bloomberg to Bloomberg (mute) to...Phineas and Ferb.

Fri, 12/11/2009 - 07:48 | Link to Comment alexdg
alexdg's picture

LOL Same here! Once in a while you glance at the tv screen to see what they're talking about (or who they are interviewing) and if it is worth putting the sound back on.

Thu, 12/10/2009 - 18:30 | Link to Comment WaterWings
WaterWings's picture

If you have two minutes for some entertainment:

http://www.youtube.com/watch?v=Ulu3SCAmeBA

Thu, 12/10/2009 - 17:16 | Link to Comment Problem Is
Problem Is's picture

What about Goldman bank-sters buying guns, ammo, body amour and fire arms for ladies shooting lessons?

That should be a big boost to consumer consumption, right?

Thu, 12/10/2009 - 17:17 | Link to Comment Lionhead
Lionhead's picture

When time is up, it's up.............

Thu, 12/10/2009 - 17:18 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

Makes sense when you figure a large portion of the upper income segment derived those incomes from the FIRE economy.  Despite the nice markups on their bond portfolios from 1/1 through 9/30, spreads can compress only so far, so without a new game to replace the credit bubble, many of those incomes are not sustainable and once lost will not be replaced in kind.

I knew guys making over a mil a year selling option arms.  A lot tougher to make a mil a year selling FHA loans to FTHB.

Thu, 12/10/2009 - 17:19 | Link to Comment Prophet of Wise
Prophet of Wise's picture

"Property is the fruit of labor...property is desirable...is a positive good in the world. That some should be rich shows that others may become rich, and hence is just encouragement to industry and enterprise. Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself, thus by example assuring that his own shall be safe from violence when built." The Collected Works of Abraham Lincoln edited by Roy P. Basler, Volume VII, "Reply to New York Workingmen's Democratic Republican Association" (March 21, 1864),

"We all declare for liberty; but in using the same word we do not all mean the same thing. With some the word liberty may mean for each man to do as he pleases with himself, and the product of his labor; while with others, the same word may mean for some men to do as they please with other men, and the product of other men's labor. Here are two, not only different, but incompatible things, called by the same name - liberty. And it follows that each of the things is, by the respective parties, called by two different and incompatible names - liberty and tyranny." The Collected Works of Abraham Lincoln edited by Roy P. Basler, Volume VII, "Address at Sanitary Fair, Baltimore, Maryland" (April 18, 1864), p. 301-302.

Thu, 12/10/2009 - 23:51 | Link to Comment Anonymous
Thu, 12/10/2009 - 17:20 | Link to Comment carbonmutant
carbonmutant's picture

When the "Housewives of Orange County" are advising each other to "Glam it down" 'cause "Bling" is no longer popular; even Joe6pak knows something's changed.

Thu, 12/10/2009 - 17:42 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

I unfortunately have to watch that show occassionally because the wife likes it. A lot of Orange County wealth was directly from the FIRE economy, look at the chicks on the show, weren't a few of them Realtors (supposedly), one sells insurance, one of the husbands was a residential contractor, one dude sold title insurance, etc.  that whole economy was predicated on flipping houses to each other.  once that went, there wasn't much to replace it.  at least LA itself has Hollywood, Orange County had Irvine, ground zero for the subprime crisis.

a lot of these people lived off the wealth they accumulated during the bubble (not savings, per se, but they are still driving the 2006-vintage Mercedes, etc), but the longer the housing depression goes on, the more pain these people will feel, and the more they will pull back spending.  and at the high end, the housing depression is just getting going.

Thu, 12/10/2009 - 17:21 | Link to Comment trav777
trav777's picture

you mean they are just socking the money away and buying gold with it??????  Instead of trickling it down?  NO WAY

Thu, 12/10/2009 - 17:22 | Link to Comment JohnKing
JohnKing's picture

Spend!

Thu, 12/10/2009 - 17:24 | Link to Comment SimpleSimon
SimpleSimon's picture

And when all the new taxes kick in, disposable income will down even further increasing the frugality of the consumer.

Thu, 12/10/2009 - 20:26 | Link to Comment Anonymous
Thu, 12/10/2009 - 17:29 | Link to Comment lsbumblebee
lsbumblebee's picture

We should probably print more money. That's how I figure it. Yep. Definitely print more.

Thu, 12/10/2009 - 17:44 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

no question that is the potion that will cure all ills.

Fri, 12/11/2009 - 06:13 | Link to Comment delacroix
delacroix's picture

in the good old days, you could buy passable counterfeit frn's for 50 cents on the dollar, in mexico, now the real dollars, are only worth 50 cents.

Thu, 12/10/2009 - 17:34 | Link to Comment Shameful
Shameful's picture

Like Cheech and Chong said "Things are tough all over"

Thu, 12/10/2009 - 17:58 | Link to Comment Steak
Steak's picture

Why must we stay where we don't belong
Why must we stay where we don't belong

Because there's never gonna be enough space
So eat the meek, savor the taste
It's always gonna be a delicacy
So Lick your chops and eat the meek

Why must we stay where we don't belong
Why must we stay where we don't belong, don't belong

The factory mass producing fear, bottled,
Capped, distributed near and far
Sold for a reasonable price
And the people, they love it, they feed it
Brush with it, bathe with it, breathe it
Inject it direct to the blood
It seems to be replacing love

Why must we stay where we don't belong
Why must we stay where we don't belong, don't belong

Because there's always gonna be token truth
Forgotten code discarded youth
You know there's always gonna be pedigree
One own the air one pay to breathe

Why must we stay where we don't belong, don't belong

Fri, 12/11/2009 - 01:33 | Link to Comment Master Bates
Master Bates's picture

I fucking love NOFX!!!!!!!!!!!

Thu, 12/10/2009 - 18:06 | Link to Comment deadhead
deadhead's picture

Bianco is full of shit and nothing but a sell side hypster. kinda like his spx call back in 07.

how the man can overweight the financial sector that is propped up by false accounting via 157 is beyond sane thought.  so, Dave, tell us about the 166,167 matter and how that will impact the festering balance sheet.  or, are you betting that Bair (per directions of the diet coke boy and helicopter ben) will provide capital relief via a 5 yr delay and then a 10 yr sliding scale implementation?

i'm a merrill client and the last thing i would do is listen to your shit advice

the fed and the fed only is propping up the banking system...

Thu, 12/10/2009 - 18:48 | Link to Comment Unscarred
Unscarred's picture

So who is diet coke boy, and how did he get that name?  I google searched "diet coke boy," and this was the first thing that came up:

http://www.youtube.com/watch?v=rMi6D9hnnHc

Thu, 12/10/2009 - 18:57 | Link to Comment deadhead
deadhead's picture

Larry Summers is Diet Coke boy.

He is notoriously addicted to the stuff.

I can also say with all confidence that he did NOT have a sexual relationship with Tiger Woods.

I can further say that he is in the top 5 group of people who have completely fucked up the USA's economy and financial system.

Thu, 12/10/2009 - 20:11 | Link to Comment Anonymous
Thu, 12/10/2009 - 21:19 | Link to Comment Green Sharts
Green Sharts's picture

Did you see this story on Summers and the Harvard endowment fund?

http://www.boston.com/news/local/massachusetts/articles/2009/11/29/harva...

It happened at least once a year, every year. In a roomful of a dozen Harvard University financial officials, Jack Meyer, the hugely successful head of Harvard’s endowment, and Lawrence Summers, then the school’s president, would face off in a heated debate. The topic: cash and how the university was managing - or mismanaging - its basic operating funds.

Through the first half of this decade, Meyer repeatedly warned Summers and other Harvard officials that the school was being too aggressive with billions of dollars in cash, according to people present for the discussions, investing almost all of it with the endowment’s risky mix of stocks, bonds, hedge funds, and private equity. Meyer’s successor, Mohamed El-Erian, would later sound the same warnings to Summers, and to Harvard financial staff and board members.

“Mohamed was having a heart attack,’’ said one former financial executive, who spoke on the condition of anonymity for fear of angering Harvard and Summers. He considered the cash investment a “doubling up’’ of the university’s investment risk.

But the warnings fell on deaf ears, under Summers’s regime and beyond. And when the market crashed in the fall of 2008, Harvard would pay dearly, as $1.8 billion in cash simply vanished. Indeed, it is still paying, in the form of tighter budgets, deferred expansion plans, and big interest payments on bonds issued to cover the losses. 

How did we end up with the 3 Stooges running the Fed and Treasury?  What have Summers, Geithner or Bernanke ever been right about?

Thu, 12/10/2009 - 22:34 | Link to Comment Unscarred
Unscarred's picture

@deadhead

Thanks.  I would have guessed Timmah, so I appreciate the clarification.

I also agree about your inclusion of Larry in your top 5, and I think that people too often discount the role that Larry played in Gramm-Leach-Bliley.

Fri, 12/11/2009 - 00:23 | Link to Comment Vulgus Porkulus
Vulgus Porkulus's picture

Larry thinks the female brain can't 'handle' science/math too.  Dork.  Whose your #1?  Do it rhyme with Dick Boobin?

Fri, 12/11/2009 - 06:17 | Link to Comment delacroix
delacroix's picture

good thing he doesn't drink regular coke, he might get fat.

Thu, 12/10/2009 - 18:14 | Link to Comment nope-1004
nope-1004's picture

This is another vote for deflation.  Spending down some 30% among the upper class since the peak, by choice or by necessity, is not really a concern.  What is a concern is that the velocity of money is rapidly declining.  Print - print - print.... does nothing if all the big banks do is bet on the dollar carry trade.

Deflation is here.  How long it stays will be interesting to watch.

Thu, 12/10/2009 - 18:15 | Link to Comment AnonymousMonetarist
AnonymousMonetarist's picture

 

http://anonymousmonetarist.blogspot.com/2009/11/insouciance-of-elites-and-antoinette.html

For the last quarter century, commensurate with the rise of conservatism from stodgy to snazzy, regular folks' inner monologues have been written in direct opposition of their interests. Poor folks voted for rich folks interests because in their hearts they felt that they were entitled someday to be rich. My generation has grown up in an aspirational society.

For our children, though, it looks more like a perspirational society with perpetual government subsidies. 

Ask not what you can do for your country, ask what your country can do for you.

Thu, 12/10/2009 - 18:20 | Link to Comment virgilcaine
virgilcaine's picture

OC wives , Think of all that silicone that will no longer be used.

Thu, 12/10/2009 - 18:29 | Link to Comment carbonmutant
carbonmutant's picture

Yea but all those stress related wrinkles are causing a significant increase in Botox injections.


Thu, 12/10/2009 - 18:27 | Link to Comment Cursive
Cursive's picture

Safe to say that Gallup won't be awarded any government contracts soon, eh?

Thu, 12/10/2009 - 18:48 | Link to Comment virgilcaine
virgilcaine's picture

Tamra has been stressed, hubbys Tequlia business  is floundering and are upside down on the Mcmansion..  the Botox queen.  Trainwreck like consumer spending.

Thu, 12/10/2009 - 20:30 | Link to Comment Anonymous
Thu, 12/10/2009 - 18:57 | Link to Comment Anonymous
Thu, 12/10/2009 - 19:19 | Link to Comment Anonymous
Thu, 12/10/2009 - 20:15 | Link to Comment Anonymous
Thu, 12/10/2009 - 20:23 | Link to Comment Anonymous
Thu, 12/10/2009 - 22:56 | Link to Comment docj
docj's picture

Same here - and I find the first-generation rich (usually people who started with zero and built it all during their working lives) tend to be quite frugal.

Their layabout kids?  Well, not so much - at all.

Fri, 12/11/2009 - 01:42 | Link to Comment carbonmutant
carbonmutant's picture

"These are the things rich men brag about. This economy isn't getting a dime from them."

+1

Thu, 12/10/2009 - 22:00 | Link to Comment Anonymous
Thu, 12/10/2009 - 22:21 | Link to Comment no cnbc cretin
no cnbc cretin's picture

Depression. Thanks for saying it, because we're not in a Recession. We're in a Depression, that's going to make the last one, look like a walk in the park.

Thu, 12/10/2009 - 23:30 | Link to Comment chindit13
chindit13's picture

A tale of two countries......

Just saw a segment on the BBC about China's newest high speed rail link.  Travels at almost 400 km/hour, and is so smooth that a cigarette balanced on its filter end on the side table will not fall down.  A quick check of data indicates that China will spend $50 billion this year on their new rail system, and eventual monies totalling $300 billion will give them 16000 miles of track within the decade.

In contrast, the US spent $185 billion on a failed insurance firm, tens of billions on failed banks, tens of billions on failed auto companies, and continues to spend $18 billion per month on one war of choice whose reason remains undefined eight years on, and a second war where victory awaits definition.

The US has no shiny new train to show for its trillion, though it does have hours of nice video, narrated by four-star hopefuls, of things destroyed as opposed to constructed.  It has no shiny new loan-making, well-capitalized banks to show for its trillions, though it has created a new Guilded Age in the Hamptons, Teluride and Nantucket, and the American people are the proud owners of stacks of highly engraved ownership certificates in Agency debt instruments whose value at least approaches that of Russian Czarist Bonds.

PS:  BBC just ran a portion of Geithner's testimony where he voiced his outrage that innocent people who did nothing wrong have to suffer from the mistakes of others.  I immediately established a new Guiness record for projectile vomiting, though my MOA (minute of arc) was unimpressive.  At least I'll be juicing retail sales with the purchase of a new TV.

 

Wed, 04/21/2010 - 22:25 | Link to Comment velobabe
velobabe's picture

you got junked, i have never seen one of your posts, junked.

well maybe it was admiration, as they say.

got to ask you again about your hard against these places.

honestly i am so intrigued with your reference to telluride. telluride is really quite the most surreal place on this planet. honest. couldn't live there, but by golly it is quite a spot on earth. have you skied there? summer is even better. nantucket rocks i know chris matthews realtor, just kidding.

new Guilded Age in the Hamptons, Telluride and Nantucket

Fri, 12/11/2009 - 04:40 | Link to Comment mannfm11
mannfm11's picture

The upper class know their assets are in trouble.  Being the rest owe their debts to these guys and the super pensions are broke as well, it isn't surprising the group most likely to know to cut down their spending would. 

Fri, 12/11/2009 - 06:32 | Link to Comment delacroix
delacroix's picture

the great depression, definitely had a profound impact on my grandfather, which stayed with him his whole life. even after he had made a few million, the fear of losing it was always there. my sister finally paid for cable tv installation, at his house. she couldn't take 2 fuzzy channels anymore, when she visited. but he just couldn't spend the 60 bucks, for a non necessity. he did lose $600,000 on enron stock, so I guess the fear of losing it was justified.

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