Luxury spending drop-off raises recovery concerns
After months of gains, report shows dip for June, the first since November
Affluent Americans went back to tightening their belts in June after months of showing other shoppers how to spend, raising concerns for the overall economy.
Data released late Wednesday by MasterCard Advisors’ SpendingPulse shows luxury spending dropped in June for the first time since November.
After a surprisingly solid start to the year, overall spending also has slowed in recent months, and analysts are concerned that shoppers will remain tightfisted through the crucial holiday season.
The 3.9 percent decline in luxury spending from the same month last year is particularly worrisome because the well-heeled — households with annual incomes in the top 20 percent, about $158,000 on average — account for almost 40 percent of consumer spending in the United States.
And a downtrend in luxury spending, which excludes jewelry but includes upscale clothing, accessories and restau- rants, could signal trouble for retail and in turn for the broader economy. Consumer spending — including such major expenses as health care — makes up about 70 percent of U.S. economic activity.
Citi Investment Research analyst Deborah Weinswig and other analysts said the small increases in inventory that stores have ordered for the fall and holiday seasons could end up being too much, meaning greater discounting, which would hurt retailers’ profit margins.
Upscale merchants could be hurt the most, Weinswig said, because they tend to order even further in advance than other retailers.
“In general, we are looking at a stable but mild growth,” said Michael McNamara, vice president of research and analysis at SpendingPulse, whose figures include transactions from May 30 through Saturday.
After building overall momentum during the first quarter, “we’ve been just treading water,” McNamara said. “Spending seems to be shifting month to month, depending on where there is a sale.”
With the stock market down from its late April peak, the luxury slowdown wasn’t unexpected: Luxury sales typically move in sync with the stock market. But they didn’t fall in May, and June’s drop was significant, said McNamara. That leaves little hope of a return to pre-recession levels soon.
“It isn’t a good omen for the consumer recovery, which cannot exist without the luxury spender,” said Mike Niemira, chief economist at the International Council of Shopping Centers.
More data coming Thursday covers June revenue at selected retailers’ stores that have been open at least a year, considered a key indicator.
June is when stores clear out summer goods to make room for back-to-school merchandise. But analysts say discounting on clothing was heavier than expected as stores had to work hard to pull in shoppers continuing to grapple with financial worries.
Still, June’s figures will look better than May because June includes part of Memorial Day weekend and because sweltering heat in most parts of the country helped to drive customers to stores to enjoy the air conditioning and buy summer tops and shorts.
Niemira, who says he will closely monitor the figures for Saks Inc. and privately held Neiman Marcus Group, predicts the overall figure will rise 3 to 4 percent for June, compared with a 5.1 percent drop a year ago. In May, it rose 2.6 percent.