Luxury Spending Hits the Skids

The AP reports "Rich begin feeling the pain in down economy":

Unity Marketing, a Stevens, Pa.-based firm whose clients include retailers in the more than $322 billion U.S. luxury goods market, said its latest poll of affluent people nationwide found a 20 percent decline in spending on luxury goods in this year's second quarter, and the lowest luxury consumer confidence level in the nearly five years the survey has been conducted.

Just over half of the 1,024 respondents earning an average income of $204,800 predicted they would spend less on luxury in the coming 12 months than they did a year ago.

Luxury spending fell 4 percent last year, and this year's decline is expected to be steeper, particularly for luxury handbags and clothing that don't hold value, Unity Marketing President Pam Danziger said.

"We face a very different environment for luxury indulgence in 2008 as compared to 2007," said Danziger, who predicts "a very difficult marketplace for luxury goods over the next five years."

More here.

reason's Kerry Howley wrote about luxury spending and "Vuitton values" here.

Comments

[Raymond Luxury Yacht]

sighs, facing a few years of loneliness...

[some fed]

Those $300-$600 tax rebates just don't stretch very far in today's luxury economy.

[Episiarch]

It's pronounced "Throat-Wobbler Mangrove".

[Ravac]

Hey Paris, you've got a little "special sauce" there, on your lip.

[Mo]

I hope the Hiltons aren't donors to the Reason Foundation because they're going to be pissed!

[joe]

Why do I suspect that we're going to see a lot fewer "the economy is going great!" comments after this?

[robc]

joe,

The economy isnt great, but Q2 numbers still showed growth. Anemic, pathetic growth, but it was still a positive number. Growth is growth. I still think you should have taken the recession bet I offered, there is a good chance Q3 and Q4 will be down.

BTW, on an unrelated issue, but still economy related, did everyone see that Zimbabwe knocked 10 zeros off their dollar? I expected to see a thread on it.

[Reality Check]

There is no recession. No two quarters of negative growth.

[Legate Damar]

"the economy is going great!" - no, it isn't

"the economy is doing much better than you might surmise from watching the national nightly news" - okay, that one's true

"the economy is doing tremendously well compared to the historical downturns that people like to compare the current one to" -true

"neither of the above means that it won't get worse eventually, but it's not there yet" - true yet again

[ed]

Silly rabbits. It's an election year. Reality has been suspended until further notice.

[R C Dean]

Why do I suspect that we're going to see a lot fewer "the economy is going great!" comments after this?

I think you've been seeing a lot fewer of those for the last several months, at least. Even from those of us who don't think the sky is falling.

[SugarFree]

All I know is that I down to using $20s when I light my over-sized fat cat cigars. This spells trouble.

[Episiarch]

You know, Paris Hilton is a skinny skank but man, in that picture she looks like she can unhinge her jaw. Damn.

(slaps self in face)

Ok, that's enough.

[LarryA]

The AP reports "Rich begin feeling the pain in down economy"

The rich aren't feeling the pain. It's the folks who make and sell stuff the rich don't really need who are hurting.

[joe]

There is no recession. No two quarters of negative growth.

That is a common MEASUREMENT of whether we are in a recession. It is not the definition of a recession.

[thoreau]

That is a common MEASUREMENT of whether we are in a recession. It is not the definition of a recession.

This raises some philosophical points. I'm sure that we'll see some very thoughtful discussion of whether or not something can exist before it is measured, and whether or not a meaningful definition of a phenomenon (e.g. recession) necessarily includes the criteria by which its existence can be determined via observation.

[Ramsey]

Recede is the base word of recession. Slow growth does not imply that the economy is receding, it implies that it is in a period of slow growth or at worst stagnant.

You do not get to define words to mean what you want in a given context joe, not yours.

[joe]

thoreau,

There are plenty of other measurements to use to determine a recession, though. Rising unemployment, slowdowns in manufacturing, declines in home prices - all of these can indicated Economics. a period of an economic contraction, sometimes limited in scope or duration, which is the dictionary-definition for recession.

[joe]

Ramsey,

I do get to look up the definition in the dictionary, quote it, and paste it.

[hotsauce]

"Recession" is a term of art in economics. When using it to describe the economy, it is best to use its narrow, measurable definition. Unless you're a hack, that is.

[hotsauce]

I should add that I do not necessarily believe the government-produced GDP and inflation numbers. I only meant to add that words have meanings. And in some contexts, words have specific meanings.

[Joel]

Is "negative growth" the same as a "retrograde advance?"

[R C Dean]

a period of an economic contraction, sometimes limited in scope or duration.

Seeing as we have not yet had even one quarter of contraction (by the usual measures), I feel pretty safe in saying that even this definition has not been met. A contraction in one area or another is not a "recession" in the economy as a whole.

[R C Dean]

I am so looking forward, BTW, to this economy kind of hanging on at a not-quite-recession for another couple of quarters, and finally slipping into after the Ascendancy of Obama. I suspect that those arguing for an expansion of the definition of recession will be singing a different tune.

[hotsauce]

RC Dean,

Either that or you will get the opposite of joe today. He will point to three or four segments of the economy and point and howl about well they are doing. Hence, not a recession.

[robc]

RC,

Actually, I think after the numbers got readjusted, Q4 of last year was negative. But, that was only 1 in a row.

[Mojotron]

Wikipedia:
A recession is a contraction phase of the business cycle. A common rule of thumb is that a recession occurs when real gross domestic product (GDP) growth is negative for two or more consecutive quarters. In the USA, the National Bureau of Economic Research (NBER) defines it more broadly as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

Economics-About.com: Recession: The Newspaper Definition
The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters.

This definition is unpopular with most economists for two main reasons. First, this definition does not take into consideration changes in other variables. For example this definition ignores any changes in the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected.

Recession: The BCDC Definition
The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession is taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it is called an expansionary period. By this definition, the average recession lasts about a year.

So most experts agree that the NBER is the best determinant, and they say that they don't weigh in until a recession is well underway (self-fulfilling prophecy fears I suppose). They say that at best, actual growth is flat and chances are we're in one-
http://blogs.wsj.com/economics/2008/01/23/is-recession-in-the-numbers-nber-members-weigh-in/

April 08 - USA Today:
The U.S. economy is in recession, or soon to be in one, according to USA TODAY's quarterly survey of leading economists.

Two-thirds of the 52 economists polled said the U.S. economy is in recession. Add those who believe the economy will be in recession soon, and 79% believe that the economy will contract at some point in 2008.

[The Recession]

They haven't revised the quarters for this year

Where do y'alll get the idea it takes 2 consecutive quarters of negative growth to make a recession anyways?

A recession is, by definition, whenever the NBER says it was. They call it 6-18 months after it starts.

[Occam\'s toothbrush]

Just curious, do the quarterly growth reports take inflation into account, or are they indexed in whatever the current dollar value is?

[TallDave]

I found this article's timing amusing as a few days ago I bought a Corvette just for fun.

A recession is, by definition, whenever the NBER says it was. They call it 6-18 months after it starts

Yeah, they called 2001 a recession despite it not having two consecutive quarters of decline. But if you keep revising the definition upward, then it doesn't mean the same thing as it used to.

Anyways, overall consumption is not falling 20%, it's actually rising, making me very skeptical of Unity's claim. Theirs is either a tiny market or just wrong.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Real personal consumption expenditures increased 1.5 percent in the second quarter, compared with an increase of 0.9 percent in the first.

[TallDave]

Occam's:

That's the difference between what's called "nominal" GDP and "real" (inflation-adjusted) GDP.