Americans, especially wealthy ones, are still spending big


The trip requests keep rolling in: the Galápagos Islands, Sicily, New Zealand, Mallorca.

For the first time since she started her luxury travel business in 2017, Marisa DeSalvio has seen no signs of a fall slowdown. In fact, people are returning from their summer getaways and immediately calling back up, ready to book their next $50,000 trip.

“We’re burned out, we’re collapsing, we’ve never been this busy in October,” said DeSalvio, who lives in D.C. “All of us in the luxury market are saying, ‘October is the new July.'”

And although she’s instituted a $10,000 booking minimum and is increasing her fee from $350 to $500, DeSalvio says clients aren’t batting an eye: They’re happy to keep splurging.

Robust spending like that – especially by the wealthiest Americans – is keeping the economic engine roaring far longer than many had anticipated. A healthy job market, extra pandemic savings, and soaring home and stock values have all made it possible for high-income households to continue shelling out, even as many lower- and middle-income families pull back.

New government figures to be released Thursday are expected to show that the U.S. economy notched another quarter of brisk growth propelled by consumer spending. That continued strength has perplexed many economists: Inflation remains high, pandemic-era relief has dried up, and many families are running out of extra savings. And between a looming government shutdown and a worsening war in between Israel and Gaza, there is no shortage of uncertainty. Still, Americans continue to spend more than they did a year ago.

“Wealthier folks are still spending, especially on international travel, blowout entertainment and other services and experiences,” Tom Barkin, president of the Federal Reserve Bank of Richmond, said in an interview last week, before the Fed’s blackout period heading into its next meeting. “Their balance sheets have by and large gotten much stronger, because of high asset values and higher equity values in their homes, and that seems to be supporting spending.”

That, he said, contrasts with low-income families, who are pulling back now that federal stimulus and pandemic-era savings have run out, and middle-income families, who are “selectively trading down” by buying paper towels at the dollar store, for example, or produce at Walmart.

In all, Americans spent nearly $84 billion more in August than they did the month before, government data shows, with much of that spending concentrated in services such as housing, transportation and recreation. Spending at movie theaters, restaurants, sporting events and casinos all rose from the previous month, and helped support a flurry of new service jobs.

That spending is expected to account for nearly half of the economy’s growth in the third quarter. The Atlanta Fed is forecasting an eye-popping 5.4 percent increase in gross domestic product, the broadest measure of economic activity, between July and September. That would be the highest reading in nearly two years.

And although government data doesn’t break down spending by income, economists say it’s clear that the wealthiest Americans are leading the charge. Sustained spending at the top of the income ladder, they say, has more than made up for pullbacks at lower levels.

“It really is the folks at the top end of the distribution who have a lot of cash and are able to spend,” said Mark Zandi, chief economist at Moody’s Analytics. “On top of that, balance sheets are in good shape – they’ve locked in record-low mortgage rates and are a lot wealthier than they were before.”

By his estimates, American still have an extra $1.7 trillion in extra pandemic savings, with the top 20 percent accounting for nearly $1 trillion of that balance. Rising home and stock values have left many well-off households – including baby boomers, the generation of Americans between 57 and 75 – in even better shape after the pandemic, despite rising interest rates.

“Baby boomers are retiring, and they’re spending more than earlier retirees,” said Diane Swonk, chief economist at KPMG. “They’ve gotten a big bump in Social Security, and now we’re seeing them earn interest on their savings in a way they didn’t before. That’s really important: It’s not just one group of wealthy households that’s spending; it’s a lot of households that are all better off.”

As a result, many upscale businesses say they’re inundated with demand, even as stalwarts of Middle America, such as Nike and Levi Strauss, report slowing North American sales. At Watches of Switzerland, a high-end retailer with seven U.S. showrooms, annual sales growth has slowed from about 50 percent during the pandemic to roughly 10 percent so far this year. But pricier watches, at $30,000 to $40,000 apiece, are still flying off shelves, according to deputy chief executive David Hurley.

“Of course, interest rates and mortgages are going up, and there’s a lot of unrest around the world,” he said. “All of those things have an impact. But we still have very long waiting lists for certain categories and brands, particularly in the higher price points.”

Consumer spending is holding up well and supporting vibrant growth, but continued strength could complicate the Federal Reserve’s job in bringing down inflation. The Fed has raised interest rates 11 times since March 2022, in hopes of slowing the economy enough to stabilize prices. Inflation has softened, falling to 3.7 percent in September from last summer’s peak of 9.1 percent, but it remains significantly higher than the central bank would like.

Barkin, of the Richmond Fed, says he’s closely watching both consumer demand and inflation to figure out where the economy is headed next. It isn’t clear, he said, whether continued spending among the wealthy is part of a post-pandemic burst that will normalize, or if it portends a more long-term shift in spending instead of saving. Personal savings rates, which picked up considerably after the Great Recession, have recently inched down.

“Do these wealthy people still have the financial wherewithal to keep spending? The answer is yes,” Barkin said. “What we don’t know is if they have the mind-set to keep going.”

At SuiteHop, which sells premium seats to concerts and sporting events, founder Todd Lindenbaum says he’s seen a gradual slowdown from this summer’s “irrational buying behavior.”

But, he stressed, spending is still brisk: Demand for suites at professional football games is about 20 percent higher than it was last year, he said.

“Coming out of covid, everyone was willing to spend more. There was this aspirational aspect to it – people had saved up money and they were like, ‘I’ll pay whatever it costs to see Beyoncé or Taylor Swift or Drake,'” he said. “It’s normalizing now. But higher-net-worth people are still spending.”

That spending, though, isn’t being spread evenly. Although Americans are still shelling out for travel and entertainment, expenditures on clothing, electronics and garden equipment have all dipped in the past month.

At Button Down, an upscale shop in San Francisco that specializes in Italian clothing, sales have slowed this year – in part because so many clients are jetting off to Italy.

“We’re seeing a little bit less demand so far this fall season,” co-owner Dan Keenan said. “Last year was a really strong year. This year is shaping up to be pretty good, too, but just not as strong because so many of our clientele are traveling instead.”

All of that travel has been good news for Black Tomato, which specializes in luxury vacations complete with private villas, personal chefs and drivers. Business is at an all-time high.

“We’ve just beat our sales from last year, and that was by far our biggest year ever,” said Sunil Metcalfe, the company’s director of sales, who is based in New York. “There has just been an avalanche of demand. People are spending on everything, all of the bells and whistles.”

One client recently returned from a no-expenses-spared family vacation in Spain, with a stop in Valencia for a tomato-throwing festival, followed by a week in a villa with a private chef in Ibiza. Now he’s planning his next jaunt, to Italy. Another just booked a $300,000 family trip to Greece.

Metcalfe isn’t sure how long this momentum will last. He’s been bracing for a slowdown all year, but it has yet to materialize. For now, high-end hotels along the Amalfi Coast and Lake Como in Italy are charging triple what they did before the pandemic – and are still booked solid, he said.

“All of the bad news – inflation, high mortgage rates – doesn’t seem to be deterring clients,” he said. “Or at least not a certain kind of client, anyway.”



Please enter your comment!
Please enter your name here