I'm not sure why the story in today's New York Times seems like such a surprise to everyone, The Times headline screams, "Americans Cut Back Sharply on Spending." I've been expecting it ever since the subprime mortgage mess started to hit the news in the middle of last year. People have been using their houses like piggy banks, tapping rising equity each year as the price of their homes continued to climb. Well, the gravy train has since passed in many parts of the country as housing prices plummeted. People can no longer refinance their homes by rolling in their mounting credit card debt or getting yet another home equity loan. So they just don't have the money to spend and they must cut back.
The Times article highlights the cut in spending by wealthier folks, using the drop of 3% in spending by American Express's affluent consumers as a signal that even the well-to-do are hit hard. Saks Fifth Avenue reported slowing growth. Nordstrom (NYSE: JWN) saw a 4% drop in sales. Tiffany's (NYSE: TIF) also saw a drop in sales in December.
The money for spending has dried up as salaries have been flat in recent years while gas prices, home heating fuel and health care costs continue to rise dramatically. The fake it 'til you make it crowd, the kind that helped to boost rising sales in upscale stores, just can't fake it anymore.
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