(Bloomberg) — The nearly rich aren't spending nearly enough, a trend that's weighing on U.S. growth.
Six years after the worst recession since the 1930s, Americans who earn $100,000 to $249,999 a year still are "making very careful decisions" when it comes to discretionary purchases, said Pam Danziger, president of Unity Marketing Inc., a luxury research company based in Stevens, Pennsylvania. "That's smart for them, but it's certainly not good for the economy."
These consumers — Danziger calls them HENRYs, or high earners not rich yet — are "feeling squeezed" primarily because their spending power is curbed by sluggish income gains, she said. They spent 10 percent less on luxury goods and services in the fourth quarter compared with the same period in 2013, according to figures from Unity Marketing.
Not surprisingly, retailers that cater to these buyers have suffered. Ralph Lauren Corp. and Coach Inc. each has missed analysts' estimates for sales growth in three of the past five quarters.
Americans who earn $250,000 or more a year also are cutting back. Their luxury spending fell 17 percent in the fourth quarter from a year earlier, though these consumers make up 2 percent of households, compared with 18 percent for HENRYs, Danziger said.
Retail sales
"The caution of high-income consumers is key to the lackluster retailing environment" because the top 20 percent of households make up more than half of total spending, said Mark Zandi, chief economist of Moody's Analytics Inc. in New York. Retail sales are flat year-to-date, following average monthly gains of 0.6 percent in the first four months of 2014, Commerce Department figures show.
Consumers are more conservative spenders and borrowers post-recession and "they haven't really let loose yet," even amid robust gains in hiring and in stock and home prices, he said. "This partly reflects the long shadow of the recession."
Many workers feel uncertain about their job security, which acts as a "halter on spending," said John Manley, chief equity strategist for Wells Fargo Funds Management in New York. This has broader implications for the economy, keeping the Federal Reserve from raising interest rates, he said.
As confidence improves, so too should spending, though both can be "easily shaken" by signs of economic weakness, Manley said. "The rich often think they're poor."
Sinking sentiment
Sentiment among Americans earning more than $100,000 has fallen 15.1 points from a nearly eight-year high in mid-April, which is more than double the 7-point drop for all income groups, according to the Bloomberg Consumer Comfort Index.
