Pessimism has set in amongst "luxury consumers," based on the latest research from the American Affluence Research Center, which found that the wealthiest U.S. households have cut their spending plans, expectations for personal income and outlook for an improved economy.
In fact, the numbers are at their lowest point since the center began its twice-yearly surveys of wealthy consumers in 2002.
The latest survey found that the wealthy have also changed their primary financial objective -- from capital appreciation and growth to preservation of assets.
Asked about their expected expenditures for eight major luxury items over the next year, two-thirds of respondents reported no purchase plans, another record low. Items included vehicles, with purchase plans dropping 30% from 2008, and home remodeling, down 50% from last year.
Travel-wise, more than half of the respondents plan to take fewer or no domestic vacations and 75% fewer or no international vacations over the next year, while nearly 30% of those planning to travel said they will stay in less expensive accommodations. In the dining category, 85% of respondents plan to reduce expenditures for dining out. Some 70% said they'll dine out less frequently, 40% will frequent less expensive upscale restaurants, and 33% will dine more often at casual family restaurants. Those under age 50 will be more likely to dine out less frequently, and to spend less on wine and liquor.
Overall, the survey found that 81% of respondents have reduced or deferred expenditures over the past year, would make a conscious effort to do so over the next year, or had already done so and will continue to do so. This figure is up from 55% a year ago.
Multiple reasons, more than four on average, were given for cutting expenditures, with the top being "uncertain when the economy will recover" (80%), followed closely by "decline in the value of our investments/savings." Both were mentioned twice as much as in 2008, when "possibility of a recession" was cited by more than 50%.
This year, around 50% said they're cutting expenditures in order to "spend less and save more." Mentioned less frequently (by 30% to 45%) were increased taxes, uncertainty about job security and compensation, decline in the value of primary residence, and increased cost of everyday goods and services (which was mentioned by more than half of respondents last year, due to the high cost of gas and oil).
The research found that luxury consumers see no expectation of a significant economic recovery over the next year. "This is a particularly gloomy outlook among the affluent respondents, who are often a leading indicator of economic conditions," states the survey summary, "as when they called the recession in our Spring 2008 survey, well ahead of others."
Among other results:
• The income and net worth of respondents who are not reducing expenditures are about 45% higher than other respondents. This group also has double the investable assets, and is much more positive about the future.
• Those over 50 are also more optimistic, although efforts to reduce expenditures in the past year and plans to so over the next year were found to be consistent across all demographics.
• Respondents with net worth over $6 million will be "least" affected, but even among them, the number stating they have or will reduce expenditures has doubled since last year, from 34% to 69%.
The "Spring 2009 Affluent Market Tracking Study," conducted via direct mail, surveyed 640 men and women as a sample of the 11.2 million households representing the wealthiest 10% of all U.S. households based on net worth, as determined by the Federal Reserve Board. The respondents have an average annual household income of $290,000, average primary residence value of $1.2 million, average net worth of $3.1 million, and average investable assets of $1.4 million.