3. The rich are hoarding their money
In June I wrote about a truly bizarre phenomenon — wealthy people and corporations have so much money they literally don't know what to do with it. They're holding it in cash and socking it away in savings accounts.
What's new: Data shows that theme has accelerated recently, with the rich cutting back on buying everything from penthouses to high-end art.
What they're saying: "While the middle class and broader consumer sections continue to spend, economists say the sudden pullback among the wealthy could cascade down to the rest of the economy and create a further drag on growth," CNBC's Robert Frank writes.
- "Luxury real estate is having its worst year since the financial crisis, with pricey markets like Manhattan seeing six straight quarters of sales declines."
- "Luxury retailers are struggling while discounters like Walmart and Target thrive."
- "At this month’s massive Pebble Beach car auctions, the most expensive cars faltered on the block."
- "In the first half of 2019, art auction sales were down for the first time in years. Sales at Sotheby’s dropped 10% and Christie’s auction sales were down 22% from a year ago."
Why it matters: With the rich pinching pennies, worry is growing about a "trickle-down recession that starts at the top," Frank writes.
- Even worse, much of the spending by poor and middle-class Americans is debt financed, as many are taking on loans to meet basic living costs, pushing Americans' debt to record levels.
The big picture: "The top 10% of earners account for nearly half of all consumer outlays," Mark Zandi, chief economist at Moody’s Analytics, tells Frank. "But their spending has fallen over the past two years, while spending for the middle class has accelerated."
- “If high-income consumers pull back any further on their spending, it will be a significant threat to the economic expansion,” Zandi says.