Short Rich Americans?

12/06/16 02:58PM EST

Short Rich Americans? - one percenters 2

Hold back your tears, but America’s 1% is hurting too.

Among luxury consumers in the United States, income growth is slowing, household net worth is no longer booming, and consumer confidence is falling. What’s more, luxury brands are clueless about how to sell to today’s rising generation—a failure already undermining their bottom line in ways not yet priced into the market.

Three key points to consider:

  • Income-spending relationship turns sour: From 2012 to 2013, when the top tax rate jumped, this trend began to reverse: Average real income for the top 1% fell by 14.9% and grew by 0.2% for the bottom 99%. The next year, 2014, was the last hurrah for the wealthy. Ever since (though IRS data are not yet available), their average income has trailed that of other Americans.
  • You can’t put a price on confidence: According to the Conference Board’s Consumer Confidence Index, optimism among those making $50,000 or more largely has been on a downward trajectory since 2015, at which time optimism was still rising among lower earners.
  • Luxury spending is very pro-cyclical: It’s instructive to look at the historical business-cycle relationship between luxury spending and overall PCE. The most important lesson is that luxury spending is very pro-cyclical: It goes much more negative than other spending during recession, and it typically peaks early or mid-recovery.

Short Rich Americans? - lapse luxury chart7

Editor's Note

This is an excerpt from an institutional research note written by Hedgeye Demography Sector Head Neil Howe. To read more Demography research ping sales@hedgeye.com.

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