Daniel Gross: Will the Rich Save the Economy?
Daniel Gross wonders if the spending by the rich will be enough to keep the economy out of a recession:
Hey, Big Spenders, by Daniel Gross, Slate: For the last several years, personal consumption has accounted for about 70 percent of gross domestic product. .... Friday morning's disappointing employment report ... shows that the economy lost payroll jobs ... for the first time in four years...
So, should we fear an impending collapse in consumer spending? Recent sales figures from retailers like Wal-Mart, J.C. Penney, Dollar General, and Sears have been less than encouraging. But the huge mass retailers may not be the best indicators of overall spending. Instead, we should probably focus on the what the rich are doing. ... As Citigroup equity strategist Tobias Levkovich noted...: "The top 20 percent of American income earners spend more in a given year than the bottom three quintiles combined. Thus, they have far more influence on economic direction." ... Consumer Expenditure Survey data ... indeed shows that in 2005, the average family in the top 20 percent spent $90,469 on consumer expenditures. The average families in the bottom three quintiles spent a combined $87,139.
And how are the rich doing? Quite well, thank you. Median income has been stagnant ... and it is still below the level of 1999. But as ... reported .. in the New York Times last month, people making more than $1 million "reaped almost 47 percent of the total income gains in 2005, compared with 2000" and "received 62 percent of the savings from the reduced tax rates on long-term capital gains and dividends that President Bush signed into law in 2003." ...
In theory, the rich, and the ultra-rich, are subject to some of the same economic woes that trouble the middle class: the slumping housing market, the rising cost of credit, and job insecurity. But they aren't showing many signs of stress. Some hedge funds have imploded, and a few investment bankers have lost their jobs, but financial-services job losses have thus far been contained to the rank-and-file employees of subprime lenders.
Bonuses at Wall Street may be down this year, but many investment bankers are clearly still spending last year's haul. At Saks, same-store sales in August were up a stunning 18.2 percent; at Tiffany, same-store U.S. sales rose 17 percent in the second quarter. Indeed, luxury retailers are in an expansive mood. ...
Nationwide, the housing sales market may be a bust. But the Journal reports ... that while many California housing markets suffer, "[e]ye-popping sales are spreading along a 40-mile stretch of southern Santa Barbara County." In July, sales in the area, "the only region of California where the median sales prices surpassed $1 million," rose nearly 28 percent. ... Or take personal transport. While auto sales are down, "the market for private jets is stronger than it has ever been," said Richard Aboulafia... Economically speaking, a Gulfstream G550, which is made in the United States ..., is worth the equivalent of 3,200 Ford Focus coupes...
Today, analysts are likely sifting through the jobs report and ratcheting down their forecasts for the Christmas season. It may well turn out to be a glum one for many retailers. But as long as the lights are on in the mansion on the top of the hill, the growing number of stores and businesses that cater to their residents will be busy.
Posted by Mark Thoma on Saturday, September 8, 2007 at 02:34 AM in Economics, Income Distribution |
You can follow this conversation by subscribing to the comment feed for this post.