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?

Many people are unsure of the work the stimulus has created thus far.

A new study is showing that Americans are losing confidence because they see debt relief as a far off dream. According to a Washington Post/ABC News poll of 1,000 people, “Overall, 52 percent now say the stimulus package has or will succeed in restoring the economy, down from 59 percent two months ago.” Experts are saying that consumers are watching the economy and their personal finances closely to see signs of resilience. Logically, it’s the states that were hit hardest by the economy whose residents are the most pessimistic about the stimulus.

The effect of the stimulus

Part of the problem with the stimulus is its seeming lack of saturation to the personal level. Although the stimulus was $787 billion, the majority of the money is still working its way through large industry giants and corporations. It hasn’t yet reached the hiring level, where people would see the biggest advantage. Vice President Joe Biden said, “150,000 of the 3.5 million jobs that are supposed to be saved or created under the program are in place.” Most Americans, hearing these numbers, are despondent, rather than satisfied. Claire Montage of Hollywood, Calif., stated, “One hundred fifty thousand jobs is nothing compared to the millions of jobs needed. … I’m not going to get excited about less than a 10th!”

Montage’s sentiments are shared by the population. With a recent projection of the unemployment rate estimating to be well over 10 percent in upcoming months, many people are unimpressed with the work the stimulus has created thus far. People are reading signs and not seeing the huge changes the stimulus promised.

People want everyday changes to become apparent

Dr. John Fieldling, psychologist for Moser College, stated, “People do not believe what they can’t see. And, they can’t see many signs of a recovery, no matter how the media writes about it.” Mentality is everything with the public, and it would be difficult for them to believe that things are getting better when they are still struggling with unemployment, debt relief, making payments and finding extra cash. The lists of things that people are mentally focusing on are largely untouched by the stimulus. Stimulus money may be helping large corporations restructure, but homeowners aren’t seeing the immediate benefits.

The Obama administration wants to find some consumer support and confidence. However, that’s a difficult task. Economist Larry Rudd stated, “People are not going to take well to hearing about large corporations recovering…they want to be able to pay bills and see prices come down in the supermarkets. They want everyday changes to become apparent.” This is the key to gaining support. If the Obama administration is to gain consumer support, it will take time. There has to be enough time for the stimulus to work its way through the layers of the market and reach the consumer level. Rudd added, “It will take time for visible signs of recovery.”

Economic recovery

Consumers are losing their confidence because of the growing unemployment rate, prices of goods and consistent problems with debt relief. Their everyday struggles are compatible with a negative assessment of the economy and its lack of growth. In turn, that contributes to a negative assessment of the stimulus. Only time will tell whether or not consumers will change their views of the stimulus, but one thing is for certain — until they see the actual changes, people won’t be satisfied.

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Proposed tax credits may give employers the slack they need to start hiring again

President Obama may make it easier for consumers to find cash now that he’s proposing a new economic stimulus plan. This week he encouraged Congress to approve a new wave of spending to spur on recovery. Although it will increase the national deficit to a record $3.8 trillion, according to the president it will provide a huge advantage for the American people.

The proposed stimulus is directed at worker tax cuts, unemployment assistance, business tax relief, and funding for state governments. President Obama requested $300 billion for the new recession-relief and job-creation initiative.

Unemployment is the crux

The president is focusing on the national unemployment rate, which is expected to hover around 10% through 2010. Experts contend that without some job-rate turnaround, other economic recovery projects will be in vain. The president is also aware that without some visible change to the jobless rate, his own midterm elections are threatened. Unemployment problems could also affect his re-election in 2012.

President urges cutbacks

In addition to the money proposed for the new stimulus, the president encouraged legislators across the nation to continue cutting back on spending and programs. According to Whitehouse.gov, President Obama has said, “I am asking Republicans and Democrats alike to take a fresh look at programs they have supported in the past to see what is working and what is not, and trim back accordingly.” A financial audit of all budgets is hoped to be instrumental in turning the economy around.

Critics of the plan

Many of President Obama’s plans include cutting back on payments to farmers above a certain tax bracket. They also require ending the purchase of C-17 cargo planes for the military. Critics are noting that the latter move is likely to create a firestorm from legislators in California since that is where the planes are built. In addition, there will be tax increases for the wealthy and new fees imposed on financial institutions. Though these cuts are promoted as measures to bring in millions of dollars, critics are saying they won’t generate much cash now that the deficit is so overwhelming. On >News.yahoo.com (See: http://news.yahoo.com/s/ap/20100202/ap_on_bi_ge/us_budget), New Hampshire Senator Judd Gregg said, “[Legislators] are not willing to do big ideas. They are doing ideas that create perception but don’t do anything big…Take the spending freeze for example, you are talking about $10 billion on a $1.6 trillion deficit.”

The role of business in the mix

President Obama’s initiative centers on businesses and promises to create a maximum $5,000 tax credit for each new worker a business hires. The goal is to encourage hiring by mid- to large-size businesses. If businesses get behind the issue, so the argument goes, the country can chip away at the unemployment rate. That in turn, will give people money to start spending again. Without money being put back into the economy, the turnaround will be that much slower. As the president said, “We will do what it takes to create jobs. It is essential.”

The economy in 2010

Finding cash now that a new initiative is in the works may become easier. President Obama is hopeful that businesses will create jobs, people will start spending, and the economy will turn around. Although it may take some time, the plan is to spur businesses and taxpayers into working together to usher the recession into the past.

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