Wealthy US Consumers Hit by Brexit & Global “Uncertainty”

So are they going to spend less?

These are the American Consumers Hit by Brexit, Global “Uncertainty” Hurt Feelings of High-Income American Consumers

American consumers, who are supposed to keep the economy afloat, are getting antsy. But this time, it’s not the fault of consumers who saw the purchasing power of their stagnant incomes get whittled down by inflation year after year, or those who suffered pay cuts or layoffs. This time, it’s consumers who’ve been floating on top of the American economy. And Brexit did it.

The University of Michigan Index of Consumer Sentiment in July dropped 4.3% from the prior month to 89.5, the lowest since April. This is also down 3.9% from a year ago, and down 8.8% from its post-Financial Crisis peak in January 2015 of 98.1.

At the time, it wasn’t that the economy had gotten that much better for American consumers. They were just getting used to the economy they had, and they settled in, making do with what was available. Humans can be morose for only so long.

This peak in January 2015 had given rise to hopes that consumers would somehow start splurging again, buying things and services they didn’t need with money they didn’t have and get deeper into debt – because that’s what these surveys are all about: will consumers go out on a limb and borrow more and spend more?

But instead, consumer sentiment has zigzagged lower since.

It didn’t impact all that much the Current Economic Conditions index, which in July, edged down 1.9% from the prior month, to 108.7, and is up 1.4% from a year ago. But the Index of Consumer Expectations plunged 6.4% in July to 77.1, the lowest since September 2014, and is down 8.3% from a year ago.

So who and what exactly dragged down the sentiment about the prospects for the US economy? “High income households” and Brexit!

Richard Curtin, chief economist at Surveys of Consumers, put it this way in the report:

Prior to the Brexit vote, virtually no consumer thought the issue would have the slightest impact on the U.S. economy. Following the Brexit vote, it was mentioned by record numbers of consumers, especially high income consumers.

Turns out, 24% of households with incomes in the top third – the beneficiaries of the Fed-engineered economy – fretted about Brexit when the survey asked them “to identify any recent economic news that they had heard” (emphasis added):

For these households, the initial impact on domestic stock prices translated Brexit into personal wealth losses. While stock prices quickly rebounded, an underlying sense of uncertainty about global prospects as well as the outlook for the domestic economy have not faded.

Will these high-income households, or any households, respond to Brexit, the global uncertainty, and issues in the US economy by cutting back their spending? It appears not. They got their feelings hurt, and they didn’t like the chaos and the volatility, and they don’t know where it all might lead to, but they’re going to go on spending at the same languid pace as before, according to the report:

Importantly, the least affected components have been personal finances and buying plans. Real consumer spending can be expected to rise by 2.7% in both 2016 and 2017.

So muted optimism continues to reign.

Alas, factor inflation into this 2.7% expected growth in consumer spending…. Inflation is stirring. Prices without food and energy rose 2.3% from a year ago, with shelter costs up 3.5%, according to the Bureau of Labor Statistics today. And that’s about what consumer spending in the languishing US economy has looked like for the past few years, based on the simple fact that high-income households aren’t spending enough to make up for the day-to-day struggles of the households in the bottom two-thirds of the American economic pyramid.

These households are trapped between the asset bubbles all around them that others have benefited from. Read… Why this Won’t Work out: Rampant Rent Inflation Collides with Stagnant Incomes

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  20 comments for “Wealthy US Consumers Hit by Brexit & Global “Uncertainty”

  1. alexaisback says:

    Brexit Smexit
    the banks in London are so corrupt and incestuous
    and for so long in London they would never leave London, they cannot leave London
    guaranteed protected corruption.
    It is alot to do about nothing as said when it is serious you lie
    they are all just handwringing right now, nothing will change

  2. OutLookingIn says:

    “Inflation is stirring”?

    Stirring? How about running at a +3% real annual clip, for the past two decades?
    Any leeway afforded the 90% in discretionary spending, has been soaked up by the higher cost of food, shelter, energy and health care.
    Oh! Please, excuse my oversight. Those components are not calculated by the Department of BLS BS as being “relevant” when it comes to inflation.

  3. michael says:

    By design as the FED inflates away the debt created by its unrepentant digital printing

    • nick kelly says:

      Unfortunately for the FED, and maybe us, it is failing. The largest stimulus in history is falling short of the government’s cost of money- about 1.7 %.
      The printing is happening but inflation isn’t.
      Deflation looms, which is disaster for debtors, and worst for the biggest debtor.

    • nick kelly says:

      Indeed there is a tendency to be frugal- every fast food chain from Burger King (whopper junior) to KFC (all leg offers) is offering a budget meal- dollar stores are everywhere, everything is on sale etc. etc.
      Oh and my favorite- after a century of Bacon being sold in one pound packages, rounded up to 500 gm in Canada, it has shrunk to 375 gm.
      I have NEVER bought one of these, buying bacon ends instead.
      Shrinking packages and cans are everywhere.

      These are symptoms of deflation.
      Isn’t a smaller package for the same money, more per pound so inflationary? No, its a sign of desperation by the manufacturer. The ONLY way he can raise his price is a form of deception. In an inflationary environment he just raises the price of the existing package.

      Another trend US consumers won’t be exposed to- Canadian supermarkets had pretty much gone metric just a couple of years ago- both weights were on the package but metric was prominent on the display signs and ads.
      Big swing back to pounds! Why- it sounds cheaper.
      Also a swing to packages ‘per each’ so you get a package of chicken with
      NO weight on it- it’ll say ‘Each’
      Which should be illegal.

      In a normal economy, say the 90’s, all this stimulus would have created double digit inflation. The fact that it’s only 2 %, if that, is an indication of powerful deflationary forces.
      We’ll know how powerful when the stimulus is turned off.

      • Dan Romig says:

        Nick, as an American who ‘thinks in metric’, I sure as hell wish the US would go metric – like the rest of the world. Sorry to hear that my northern neighbors are being short changed as you say.

        • interesting says:

          i do engineering work and i have some customers that like their designs in metric and others in imperial units…….i’ll do it in either way but what SUCKS is working in both!!.

          actually i prefer metric as .5 millimeters is a nice round number and everything is less digits….much easier than say .6875

          p.s. the work has fallen off a cliff…..AGAIN, it’s been like this since Q3 2014.

        • nick kelly says:

          Oh ya- if you are ever making a scale diagram you just multiply or divide by 10, or a percentage. The metric system base 10, dovetails nicely with our number system.
          No 12’s or 8th 16 ths or 32nd.

          But as an old Brit (descent) I do have to quote a Brit physics prof;
          ‘The CGS (metric) unit of work is the dyne, a force of one gram exerted through one centimeter.
          The Imperial (British) unit is a force of one pound exerted through one foot, which with characteristic British perversity they call the foot- pound.’

        • Wolf Richter says:

          We did go metric, tried to, under Carter, but when some passive-aggressive idiots put up highway speed-limit signs that said 88 km/h, in addition to 55 mph, the American public was fooled into thinking that metric was complex. And metric died.

          They should have put up signs reading 90 km/h (and raised the speed limit a smidgen for those driving on the metric scale), but no!

      • OutLookingIn says:

        “These are symptoms of deflation”. Wrong.
        When buy less quantity of something for the same price, that means you are paying more per unit of measurement. Inflation.
        Yes, merchandisers are using every trick in their book of deception and advertising, to confound and confuse the consumer into paying higher prices, while attempting to hide the fact.
        Vastly increasing the base money supply is inflationary. In a very poorly operating economy, deflation comes first as assets decrease in value. Inflation that is hidden (smaller packages) begins as desperate producers seek higher returns. Eventually, this inflation begins to run higher, feeding on itself and becomes highly visible. This is where the “blow-off-top” is most apparent. We are now very close to this moment.

        • nick kelly says:

          Yes- as I said in my comment the same price for a smaller package is a higher price- that is arithmetic. It’s true by definition.
          But this occurs when a manufacturer or processor CAN’T pass on increased costs or get a higher profit by just increasing the price of the existing package.
          In an inflationary environment like the early late 70’s early 80’s, there was hardly any screwing around with package sizes- they just increased the price.
          They can’t do that today. That is probably the biggest single news in retail- increased costs can’t be passed on.

        • Charlie says:

          The traditional definition of inflation is too much money chasing too few goods. ( Also inflation is caused by shortages of vital commodities-see Opec, oil embargo; Zimbabwe, food) .
          Is there so much money sloshing around in the economy that people are bidding up prices? I don’t see that. Wolf recently cited an index ( I forget the name) that showed inventories rising relative to sales. People are not buying because they have no money. Money created by QE doesn’t get into peoples pockets.

        • MoBo says:

          Stopped buying Haagen Dazs Ice cream when there’s pint became 14oz

      • Agnes says:

        Deflation is a decrease in the money supply. My cost of candied ginger has more than doubled in 8 years.

  4. Dan Romig says:

    Boy, that hits home! While I am not a “high income American consumer”, I do worry about the economy, and have tightened the pursestrings. If my material possessions are of good quality and working, there’s no reason to replace or upgrade them I reckon.

    One can live well and spend modestly – even though that doesn’t fuel the economy. Since the 2008 recession, I think that sentiment has grown. Now it seems to be cooler to be frugal, than to be living beyond one’s means and ‘Keeping up with the Joneses’. I would bet this trend will continue growing as wealth inequality speeds up.

  5. David Calder says:

    For 8 years we had a policy of cheap money, for those with money, trying to tweak a bit of inflation into the works to get consumers buying again, ignoring the fact people actually have to have some money to buy anything. That policy has failed but what it did do was push people with money to invest in assets, commodities, junk bonds, most of which have fallen in value. Now we can see just how crazy that policy has become with zero and even negative rates creating a $12.6 trillion toxic waste pile of bonds, all of which will become worthless if inflation actually returns.. Anyone living on a fixed income already knows that answer.

  6. nick kelly says:

    ‘All of which will become worthless if inflation returns…’

    True. But will offer a positive return if deflation returns.
    Some people are buying stocks and other people are buying bonds.
    We’ll see who’s right.

  7. Petunia says:

    I don’t have enough disposable income to enjoy the finer things in life, but I’m not feeling that envious, because the finer things are not so great these days. The quality of luxury goods is really down, especially in their design. I amuse myself every month perusing a high fashion magazine and I wouldn’t buy most of the stuff, even if I could afford it. The merchandise is more overpriced than ever and not attractive at all. I think the downturn in the economy is showing up in a lack of esthetic innovation. Rich women don’t need another dress, or pair of shoes, and nothing out there is pulling them into the stores.

  8. Merlin says:

    The three women in my life love nothing better than getting a great deal at TJs or marshalls on an item that is currently (or just past season) full price at Macy’s, Nordstoms, etc…..

    BTW, the inflation in food prices due to the ethanol conspiracy is proof to me of inflation at work. Compare food prices now to 2004 when gas was last under$2/gal in the US.

  9. Agnes says:

    Now if only I could get my box of pokemon cards from the next state over(family out of town), I could pay off my credit card before the fad is over..entire first three sets….

    time is of the essence

Comments are closed.