Is The US Headed For A Recession? Look At What Richer Americans Do On Black Friday


(MENAFN- Live Mint) "Richer Americans are
curtailing their spending ahead of
Black Friday, a worrisome sign for an Economy that has so far depended on the US consumer to stave off a recession the three months ahead of the all-important holiday shopping season, a group of retailers that cater to the upper middle class
- including Apple, Coach and Nordstrom - saw its biggest sales drop in two years, according to an exclusive analysis of Bloomberg Second Measure data. The malaise also hit top-performing malls in wealthier areas, even as overall retail-sales figures march higher Read | How Work From Home Has Reshaped What Americans BuyDespite record interest rates and soaring inflation, the upper middle class“had been driving a lot of the stronger-than-expected spending,” says
Kayla Bruun, a senior economist for
Morning Consult, a survey research firm. Now, people with at least $100,000 in household income are starting to become more frugal, she says Tuesday, Best Buy Co. and Lowe's Cos. cut their forecasts and warned that shoppers were pulling back on big-ticket items like appliances ahead of the holiday season. Kohl's Corp. reported its seventh-straight drop in comparable sales, as a partnership with Sephora drew in customers but didn't spur them to spend more money on other items at the department stores. Even positive results at some retailers left investors wanting more as shares slumped at Abercrombie & Fitch Co. and American Eagle Outfitters Inc Read | America may soon be in recession, according to a famous ruleAffluent shoppers often have an outsized
impact on shifts in consumer spending because they have money to splurge when times are good but are quicker than the wealthy to pull back when feeling pressured. So a hit to the brands, retailers and shopping malls that cater to richer Americans foreshadows potential weakness ahead for the US economy a proxy for high-income spending, Bloomberg created an affluence index of 30 large retailers and brands across 10 categories - spanning clothing, jewelry and electronics - with average transaction values above their peer group Read | Explained: Why has the US not slipped into a recession yet? What are the odds of a US recession in the near term?All the companies in the index surpassed an average of $100 per purchase in October, save for makeup and skin-care sellers Sephora and L'Occitane. Some retailers, including Apple ($267) and West Elm ($292), far exceeded that. Most are popular holiday-shopping
destinations, including Best Buy, Williams-Sonoma retailers and brands in the index experienced a deterioration in sales since January that recently deepened, according to Bloomberg Second Measure, which tracks anonymous US credit- and debit-card transactions. Sales for the three-month period from August to October declined at 70% of the companies. The median change in sales reflected a 14% drop - the worst performance in two years. The few brands to defy the trend were the likes of Ugg, which Vogue earlier this year called the“hottest new shoe.”Also Read | How to know if US economy is in recession?Julie Robinson-Jasper, 54, whose Seattle household earns more than $100,000 a year, is already planning to keep holiday spending tight. She's capped gifts for her two kids at $600 - the same amount as the past three years, but with considerably less buying power after rapid inflation. The family is mostly eating at home to avoid higher prices at restaurants and turning to the resale market for clothing.“We don't want to be caught with our pants down if something were to happen again, like a layoff or an illness,” says Robinson-Jasper, who works for a plant nursery traffic at shopping malls that serve higher-income areas are also starting to decline for the first time since the pandemic, according to an analysis of Placer mobility data for top shopping centers in 25 states. In October, 21
of the 25 shopping destinations analyzed - spanning Birmingham, Alabama, to Garden City, New York, and Bellevue, Washington - posted declines in foot traffic. Overall visits sank 3.3% for the latest three-month period, the worst performance since early
2021 softness extends to areas that have gained population post pandemic. On the outskirts of booming Houston, where household income is 20% higher than in Texas overall, the Baybrook Mall saw foot traffic drop by 660,000 visits this year, or about 6%, according to Placer, which analyzes mobile-phone location data Read | Tesla shares surge over 2% on report of possible pact with India to import EVs“Everybody is kind of in window-shopping behavior right now,” says Bre Clinton, an assistant manager for the Body Shop at Baybrook Mall.“They don't have many bags in their hands.”Clinton, 25 years old, says holiday shopping is off to a slow start, with cheaper items like mini sizes of body scrubs selling better than pricier options. To attract shoppers, she says, the store is giving away more trial sizes of lotion.A spokeswoman for Brookfield Properties, owner of the Baybrook Mall, said
that retail sales at the shopping center
were
up in the 12 months through September
and
the firm
is“thrilled” with its
performance slowdown at malls and retailers serving the upper middle class contrasts with
the headline US retail-sales numbers, which have posted year-over-year growth since 2020, when the pandemic shut the economy down. While in lockdown, higher-end shoppers began splurging on their homes and new wardrobes. As Covid faded, spending
shifted to services and experiences like vacations, restaurants and Taylor Swift concerts years of high inflation and rising interest rates have soured the moods of some consumers. While the job market has remained strong, real incomes have had periods of decline, with parts of the upper middle class taking a bigger hit median income for US households led by someone with a college degree fell 4.9% to $118,000 in 2022 - twice the rate of decline for all earners, according to Census Bureau
data. Only in the past few months have wages adjusted for inflation started to rise again patterns among the upper middle class often reflect how they feel about their wealth, which is strongly tied to the value of their homes. In several major markets, property prices have been falling Americans are increasingly worried
about their jobs and are opting to pay off debt after they splurged on summer travel, Bruun says, shoppers are pulling back on big-ticket items like washing machines, Botox and even teeth straightening. Buying on credit has become more expensive after the Federal Reserve significantly raised interest rates to curb inflation, weighing on sales of Harley-Davidson motorcycles and Teslas are“sitting on the sidelines,” Edel O'Sullivan, chief commercial officer of Harley-Davidson, told analysts last month.“Just putting this level of a discretionary purchase to the side in 2023.”Likewise, Revolve Group, an online fashion apparel retailer with an average order of about $300, warned of trouble ahead earlier this month when
Co-Chief Executive Officer Mike Karanikolas
spoke to analysts.“Aspirational luxury consumers who were flush with cash 18 months ago just don't have the same capacity to spend,” he said.

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