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Peasants Revolt As The Well-Off Go Shopping!

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    October 13, 2011

    U.S. Consumer Credit Fell $9.5 Billion in August.  

    August marked the largest drop in consumer credit in almost a year according to a statement released by the Federal Reserve on Sunday.

    The $9.5 billion decrease follows an $11.9 billion increase the previous month. The Feds also announced that non-revolving credit such as student loans and the financing of automobiles fell by the largest percentage in three years. Non-revolving loans were down by $7.23 billion in August.

    The drop in consumer credit means Americans are either paying down old debt or simply lack the confidence based on the current economy to buy non-essential goods.

    Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York told Business Week:

    “Consumers were cautious over taking on additional debt at the end of the summer after the volatility in the stock markets and the uncertainty caused by the failure of Congress to work together to bring down these trillion-dollar deficits.”

    … but not for everyone:

    Stocks Tumble; Wealthy Keep Shopping.

    When stock markets tumble, wealthy U.S. shoppers typically cut back their visits to such luxury emporiums as Saks Inc. (SKS) and Nordstrom Inc. (JWN). Yet even as the markets have seesawed, they’ve kept right on spending.

    Exhibit A: Saks and Nordstrom yesterday reported September sales that exceeded analysts’ estimates, while luxury retailers as a whole outpaced all other segments except gasoline-selling wholesale clubs.

    Affluent Americans aged 24 to 49 who have a yen for high living and bling are helping drive luxury sales, says Unity Marketing, which conducts quarterly shopper surveys. One cohort, called the “X-Fluents” — for “extremely affluent” — are responsible for 23 percent of luxury sales in the U.S., up from 18 percent in 2007, the Stevens, Pennsylvania-based firm said in a Sept. 14 client presentation it provided to Bloomberg News.

    “The U.S. marketplace is more concentrated among young people,” said Unity President Pam Danziger. “They are more predisposed to luxury indulgence and represent more promising targets to luxury brands.”

    X-Fluents were out in force again last month, she said.

    Another group that Unity has dubbed “Aspirers” are also spending more on luxury, according to Danziger. They favor “flash, bling and status” and now account for 18 percent of luxury sales compared with 16 percent in 2007, she said.
    …Their wherewithal stems from job security, bonuses and stock options, Pedraza said. Many are clustered in financial services and Silicon Valley, removed from the economic challenges other Americans face.

    Cars, of course, are where the real action is:

    Luxury-Car Sales Defy Crisis

    FRANKFURT—Luxury-car sales continued to surge in September despite Europe’s deepening debt crisis and slowing economic growth in several major markets, making it likely that BMW AG, Daimler AG and Volkswagen AG’s Audi brand will report solid third-quarter earnings growth.

    “We made solid gains right across the globe and once again achieved record sales for September, which contributed to a record third quarter,” BMW sales chief Ian Robertson said Monday in a statement.

    The Munich-based firm expects to hit its 2011 sales target of more than 1.6 million combined for its BMW, Mini and Rolls-Royce brands, he said, which would represent a sales record for the group. BMW expects to remain the world’s best-selling premium auto maker, ahead of its German rivals Audi and Daimler’s Mercedes-Benz this year.
    Sales for the company’s core BMW brand rose 9.3% in September to 128,446 cars. Demand was particularly strong for the compact sports-utility-vehicles X3 and X1. In the first nine months of the year, the brand’s sales were up 15% from a year earlier at 1.02 million cars.

    Last week, Daimler’s Mercedes-Benz brand posted 120,982 car sales for September, up 2% year-to-year. The brand’s sales in the first nine months of the year rose 7.6% to 919,288 cars.

    “We will continue to grow in the fourth quarter as well, so we are on track to make 2011 the most successful year in our company’s history,” Mercedes-Benz sales chief Joachim Schmidt said.

    Some thoughts:
    The growing disconnect between “X-Fluents” and the rest of us is the culmination of a trend that began decades ago with soaring executive pay in the U.S. Back in the 1980s I wrote a few “highest-paid executives” articles for a state business magazine, and even then it was obvious that American corporations had come up with a kind of perpetual motion salary increase machine: A company would hire a benefits consultant to advise its compensation committee on the CEO’s pay. The consultant would look at other companies in the field and report to the committee what their CEOs made. The committee would then match the average, plus an extra 10% or so for it’s obviously-above-average CEO. This new, higher “comp” would then go into the mix for the next consulting study, thus ratcheting up CEO salaries in an arc that had little to do with performance.

    And let’s not even get into the games public companies play with stock options.

    The other reason the rich feel richer is that they own most of the world’s financial assets. The average American’s retirement savings is tied up in their home, which is still falling in price, while top-5% Americans are diversified in stocks and bonds, which had nice runs in the past few years. So (recent volatility notwithstanding) they’ve been gradually feeling more and more flush as the markets have recovered from their 2009 lows. It seems completely reasonable, when your portfolio doubles, to reward yourself with a new toy.

    Still, you’d think, given the growing disparities of wealth and rapidly spreading angst among the have-nots, that the world’s CEOs, investment bankers, hedge fund managers and trust fund babies would have the sense to dial back the conspicuous consumption. But they don’t seem to notice the dynamic, and now the Tea Party and Occupy Wall Street movements, enraged by what looks like a rigged game, have entered the mainstream. The peasants have grabbed their pitchforks and headed for the castle.

    Later addition:
    The idea that opposing huge concentrations of wealth and ostentatious toy buying is leftist or anti-capitalist or collectivist is misguided. The fact is, you can’t have a capitalist democracy without radical upward mobility. Everyone has to see a clear path to the next wrung on the ladder, and if a small group of people — in this case bankers, career politicians and the military industrial complex — seem to be hogging all the wealth and holding everyone else back, then the other 90% will just vote to take what the rich folks have. You end up with high marginal tax rates, wildly overoptimistic pension and health care entitlements, capital controls and eventually, to pay for it all, currency debasement. In other words, exactly what we’re in the process of getting. That’s bad if you believe in free minds and free markets.

    About The Author

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    DollarCollapse.com is managed by John Rubino, co-author, with GoldMoney’s James Turk, of The Collapse of the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998). After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a Eurodollar trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He currently writes for CFA Magazine.


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