Even rich people are feeling the pinch during this recession. Coins are slipping through their fingers like sands in the hourglass. (Photo Credit: ThinkStock)

Spending has stimulated the recent recessionary economy, and rich people have largely been the ones doing the spending. But now the New York Times reports that even the big spenders have roped in their purchases. The Federal Reserve has acknowledged that America’s economic recovery has slowed. If conditions worsen, experts believe that another stimulus may be necessary.

If rich people spend, jobs are created

Demand for goods and services creates the need for additional jobs, and spending – particularly that of the top 5 percent of U.S. income earners – indicates demand. That top 5 percent, which includes those earning $210,000 or more annually, accounts for “one-third of consumer outlays, including spending on goods and services, interest payments on consumer debt and cash gifts,” according to Moody’s. As 60 percent of America’s economic fortunes depend upon consumer spending, that one-third is of super-sized significance. Gallup found that those earning $90,000 or more – their “upper income” classification – spent $145 per day in May 2010. That was up 33 percent more than  May 2009. Unfortunately, the numbers for June 2010 were significantly lower, reports the Times. Rich people spent a mere $119 per day. Were they leaning upon bank loans more than was their custom?

Luxury businesses on the rocks

Early in 2010, luxury business showed strong numbers. As summer set in, reservations at hotels like the Four Seasons and Ritz Carlton fell. Sales at luxury retailers like Neiman Marcus and Saks Fifth Avenue slowed at about the same time. Rich people are spending less and buying less Real Estate in Manhattan and the Hamptons. Sure, those who aren’t rich are forced to be more frugal and use the occasional fast loan, but if rich people stop spending, it’s panic time.

Going where the Dow takes you

Considering their greater level of personal financial investment, rich people look at different indicators than the average person when it comes to evaluating the financial weather. The Dow Jones is a benchmark that means more to those who are extensively invested. When the numbers finally climbed back above 10,000 after being mired in the 7,000s months before, they psychological affect was palpable. Spending rose in all avenues, including car sales. Luxury vehicle dealers did well, but of late, some luxury auto dealers have enacted layoffs of 15 percent of more of sales staff. Even for those rich people who can still afford to spend, the psychological impact of looking like a glutton while the majority of the country pinches its pennies keeps them from spending more, according to studies by the Institute for Policy Studies in Washington.

What is the sign of economic apocalypse?

It could be that “apocalypse” casts too dark a pall, but consider this. Linda Stasiak, a high-end skin care product saleswoman, has found that the one single item that has experienced the top sales increase is the $15.95 tube wringer. It’s designed to squeeze each and every drop out of a tube – because today, even rich people are feeling the squeeze. Fast loans for tube squeezers, anyone?

Sources:

New York Times

Has the recession changed our perception of wealth?

Americans relying on unemployment

Millions of Americans are seeking jobs while relying on unemployment checks to sustain themselves and their households in the meantime. In the past, unemployment pay was set to last for six months, the official insurance limit on the program. However, difficulties and a down economy have forced the federal government to extend payments to as long as 99 weeks in some states. That’s the longest period unemployment has ever been extended since its inception.

The critics weigh in

Unemployment benefits are not being extended without criticism. There is now a political debate over the extensions. The cost of unemployment is $10 billion a month for the government and many legislators are questioning the move. Senator Jim Bunning recently made moves to extend benefits, but was attacked by Congress members who believe the cost is too high for the nation. For example, Senator Jon Kyl believes that extending benefits does little to encourage people to find work. They may become lax in finding jobs and seeking to change their financial positions.

The numbers speak for themselves

Despite Kyl’s position, the numbers on unemployment are showing otherwise. The National Employment Law Center showed that the main reason people are out of work is not due to comfort. There are six unemployed Americans for every available job in the market. In addition, many of the Americans who are looking for jobs are not qualified for the positions in need of filling. Those who are seeking payday cash are looking in as many different places as possible. Desperation is pushing people to consider job options they may have previously overlooked.

Unemployment compensation

Unemployment benefits were created in 1935 as part of the Social Security Act. The purpose of the fund was to sustain the unemployed as the economy wavered. Throughout the years, it has proven effective and helped millions of Americans pay bills, stay in their homes and remain financially afloat until new jobs became available. Studies have shown that about 67 percent of unemployed people take advantage of the fund. The bulk of the fund comes from employer taxes, but in times of unusual financial stress, the funds have been extended then scaled back when things return to normal.

The verdict on unemployment and its extension

Despite some debate, the decision to extend unemployment is most likely going to remain intact. Most people use unemployment checks the same way they would use payday cash. They put the money directly back into the economy. Due to a lack of discretionary spending, most of their unemployment check is channeled right into the market. That is the overall goal of the government-to spur people into spending and reinvigorating the economy.

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Tracking the economy

December’s activity was high. The Consumer Report’s shopping index for December was 14.1. By January that index fell to 10.9 and in February, it has already fallen to 6.9. That makes it well below the pre-holiday index and is proving that consumers are being frugal and conservative with their payday cash. In fact, the 6.9 index is the lowest level the index has fallen since it’s been tracked.

Consumers in financial difficulties

Part of the decline in the shopping index was a loss of major appliance buys. During the holiday season consumers were buying stoves, washers, dryers, refrigerators and personal electronics in large numbers. Now, they are drastically slowing down their purchases. Contrary to the move, though, is the fact that consumers are also suffering less financial difficulties. According to Consumer Reports survey, Americans are doing better financially. The biggest difficulty Americans had was affording medical bills and/or medications. That number is now down by 2% since the end of last year. Looking at medical bill affordability is a major factor in tempering the economic state and how consumers are managing financially.

The Consumer Report’s overall index

Consumer Reports calculates an overall index that is comprised of five individual indices: the Sentiment Index, the Trouble Tracker Index, Stress Index, Retail Index and the Employment Index. Here are the numbers reported:

• The Sentiment Index. The Sentiment Index gauges the optimism and pessimism of consumers. Those in the 18 to 34 range were the most optimistic about the future, as were those with incomes of over $100,000. The most pessimistic Americans are those with less than $50,000 in household income and those over 65 years of age. This index was steady throughout February as compared with January.
• The Trouble Tracker Index. This is an index that tracks the economic climate and how many difficulties are predicted in the near future. This index has shown a great improvement over the past month. It was at its height during the height of the recession.
• The Stress Index. The stress index gauges just that: the amount of stress consumers feel due to the economy. That index has fallen since December but stayed at the same level as January. It’s an indicator that though people are feeling better about the economy, they aren’t yet embracing true change. Consumers continue to be reserved in their assessment of the market.
• The Retail Index. The retail index declined after a high in December. It is now leveling off and remaining conservative. It’s returned to pre-holiday season numbers.
• The Employment Index. Finally, the employment index is still low. This reflects the number of job losses in the market. It is indicative of an economy that eliminated a large number of jobs and has yet to replace them.

The future of the indices

The new Consumer Report’s indices are accurately gauging the state of the economy. Over time, it’s hoped that each one will improve considerably, but until they do, consumers are left to continue managing through the difficult times. Though it is hard, many are rallying, getting serious about their finances and hoping for the best.

I know that my spending habits have changed in the last couple of years. Yours likely have too. This change is the result of job cuts, lower pay and the overall financial downturn. We all need the economy to recover and getting out there and spending some money would certainly help turn things around, but few people can afford to do that at this point. We are basically just spending money on the essentials these days, and even that spending has changed somewhat.

Where is Money being Spent?

According to a recent article on the U.S.News site, market research is showing some definite trends in how and where Americans are spending their hard earned money. One noticeable shift is in the amount of debt that most of us are willing to carry at this point. Before the recession people were more likely to buy on credit and to spend money on large items that were not essential. Nowadays consumers are sticking much more to the basics and trying to pay in cash as much as possible, sometimes taking short term loans when necessary.

Thinking Outside the Box

Tough times often inspire more creativity. People do not want to completely give up the pleasures in life. Dinners out with friends, family trips, fancy coffees and home renovations are all things that can be altered to fit a more frugal lifestyle. Organizing rotating potluck dinners at friends’ houses can replace dinners out. Camping or visiting local attractions can substitute for larger family trips. Buying some quality coffee beans, a grinder and a milk frother will allow you to create specialty coffee at home each morning. Doing basic home updates yourself such as painting, can really save money.

Labels No Longer Matter

There was a time when name brand products were king. This way of thinking has all but disappeared in recent years. Particularly when it comes to food items, many people have turned to no name and store brand products instead of the pricier name brands. There are many great-quality products in this category, some of which are even made in the same factories, right alongside the name brand products. Many consumers are finding that saving a few cents on each item really adds up and, with the quality being surprisingly good, they will continue to buy the lesser known brands in the future.

Removing the Temptation

Another finding is that consumers are spending far less time casually browsing stores. They now tend to go to the stores only when there is something they truly need. On the same note, if there is a larger item you need, such as furniture or appliances you can often find used ones for a lot less online or in the classified section of your newspaper. Conversely, if you have items that you no longer need you can make some extra cash by selling them off and you will be de-cluttering your house at the same time.

A Little Extra Help

We are all doing what we can to save money and get by from one payday to the next. Unfortunately, sometimes unexpected costs arise before payday. In these instances you may want to consider a payday or installment loan. Both are quick and easy to apply for online and can offer you a way to get through the rough patch.

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How the economy is recovering

The personal cash loan increased in usage this past holiday season. In November many people found themselves coming out of the recession with few options to manage Christmas gift purchases. Now that the holidays are over and people are recuperating financially, it’s time to put together some numbers as to how the economy is shaping up. Retailers have much smaller inventories than the past but also have slightly better-than-predicted sales receipts.

Inventories and Christmas

A lot of retailers are reporting low inventories. In fact, their inventories are so low that they have had to already bring in new orders to restock their locations. In former years, retailers were able to stock up enough product to last through the Christmas buying season and beyond. This year budgets were tight and overbuying was not an option. As a result, shoppers looking for after-holiday sales may have to search hard to find them.

NPD analyst Marshall Cohen said, “Retailers are much more nimble this year. Their ‘Plan B’ is to have new receipts at the ready.” He noted J. Crew and Coach as two stores that had already restocked their shelves for the post-holiday rush. Part of the higher profit margin can be attributed to ordering that was in line with weak demands. This allowed retailers to retain a higher price point on items and that is what brought in added profits.

John Lonski, chief economist of Moody’s, stated, “The latest holiday shopping season wasn’t a rip-roaring success, but at least it met or slightly exceeded expectations. Consumer spending is indeed in a recovery mode, which brightens prospects for 2010.”

Overall spending is on its way up

One of the indicators most economists have been watching closely is consumer spending. It fell to its low point at the height of the recession when the unemployment rate was at its highest. Spending rose 3.6% however from November 1st of this year through December 25th. That number was well beyond what industry insiders were predicting for the end of 2009. Studies are showing that consumers were using savings, personal cash loans and credit to rekindle the buying patterns of their pre-recession lives. That’s good news to the market because its full recovery is dependent on the reinvigoration of consumer spending in the US.

Despite the good news

Despite the good news with spending, there is still an issue with numbers for the holiday season. Analysts warn that it is still too early to truly gauge how well the market is recuperating from the economic downturn of 2009. Though there are some signs that things are on an upswing, there is still a period of recovery that every business and consumer needs to go through. Retailers are expected to extend their specials throughout January of 2010 in an effort to encourage spending. Lonski added, “The best thing businesses can do right now is to push for spending. That is going to mean creating deeper discounts and specials for customers. It’s imperative that businesses see how this encouragement is the only thing that will continue to turn the market around.”

Recovery after the recession

Though the recession is over, the US still needs to go through recovery efforts before it returns to normal. Consumers are still feeling their way in the dark, trying to best protect themselves from future financial disasters. In terms of spending though, they are ready to start making purchases. By using savings, personal cash loans and credit hopefully consumers will gain confidence in the market once again.

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Current data states that over 10 million households in the United States are struggling to pay back payday loans. One can only assume from this that people are spending more than what they earn. There could be a number of reasons why this figure is shooting up constantly. Payday loans are increasingly meeting demands from people who seem to run out of money frequently, and the costs that people incur on these loans are high.

Are Declining Wages to Blame?

There is no doubt that companies have looked to cut costs during the recession. While some people may have faced wage cuts, others may have been laid off. Sudden changes in income or even the complete end of an income can affect the quality of life for many. But are people really changing their standards of living to meet the decline in wages? Or are they simply trying even harder to keep their high standards of living alive while going into debt even further? This is a question that every person facing a decline in wages must ask themselves in order to get out of debt.

Small Debts Look Big

The average income in the United States is about $30,000 to $40,000 a year. Whether this income is sufficient to meet all the needs in life depends on where they live. For example, those who live in small towns may be able to manage on this income, while those living in larger cities may end up struggling with the same amount of money. Housing costs alone can take at least a third of their income, leaving them with little room to maneuver for other expenses. Under the circumstances, looking for a payday loan to act as a supplement to the income is certainly not a bad option.

Look to Payday Loans for Help

If you are struggling just to meet your monthly expenses and you have nothing left over for the essentials, maybe taking out a payday loan will help. The money is available for short periods and can be paid back with your next paycheck. Payday loan lenders are more willing to lend again to someone who pays back their loan on time. Debts tend to emerge when people start misusing the easy credit that is available as an option for higher expenses. When people start spending $500 or $1,000 above and beyond their income, they ultimately end up in a huge debt and complain about payday lenders.

Reduced Expenses Reduce Reliance on Loans

When your income is reduced, one of the first things you need to do is cut your variable costs, and expenses that are not essential should be cut first. Look at your entertainment costs such as cable and internet—are they higher than they should be? This means that if your cable bill is extremely high, you need to look at getting rid of the channels that you are not using. And if you really cannot afford the high speed internet, find other ways to access the internet that will be easier on your budget. Even cell phones can be replaced with a land line, such as using Vonage. If you still find yourself short of funds, there is always the payday loan that is available within a matter of hours to help you find more money for essentials.

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