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The Rich Have Stopped Spending And That Has Tanked The Economy (3 minute listen)

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Good article. We've certainly been doing a lot less spending on shows, restaurants, travel, and such which we used to do a lot of. Especially since we're retired and have the time.

 

Our grocery spending has gone up a bit but a lot less than the above has gone down. Pick up center cuts ($60/lb) a few times a week at Harvest Ranch which has an outstanding butcher and seafood collection. Still way under 10k/y for food.

 

And getting used to it. May stop eating out most of the time when this is over.

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Correct. You can see it in terms of foot traffic, shops, restaurants, etc, etc. Even though the economy is beginning to restart, albeit very slowly, the once thriving high end places are nowhere near what they were pre-covid19 and who does that really hurt? The workers that can't afford to live in the communities where they work.

 

Hearing more and more that some businesses are running out of money, and already have exit strategies and/or significant changes to their business model. Again, those on the higher income ladder are largely unaffected, but those on the lower rungs are hurting and that pain will continue for quite some time.

 

Sad to say the rich get richer and everyone else is taking 2 steps backwards.

 

 

 

 

 

 

 

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I don't consider myself rich by any means, but I'm a serious saver who can almost retire.  Once my business trips kept getting moved online one by one, I liked the reduction in spending, and made it a game every month to find some expense from the previous month that I could cut.

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21 minutes ago, nemo said:

I don't consider myself rich by any means, but I'm a serious saver who can almost retire.  Once my business trips kept getting moved online one by one, I liked the reduction in spending, and made it a game every month to find some expense from the previous month that I could cut.

Rich is often a relative term ("anyone with more money than me"). But this crisis has shown the value of independent means, which is out if reach of many, often because either they're too young to have time to have saved,  chose not to, or didn't know how.

 

It is a reminder that everything is fleeting, including jobs. But creating your own space and undepleted nest egg remains great advice. 

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I've been spending more than ever. I suppose investment is a different conversation. 

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We've reduced air spending by about $20k since Oct '19 (we initiated a voluntary travel hiatus long before COVID became an acronym in our lives, focused on a job change and relocation).  Spending on "fine dining" has gone to nil since March.

 

However, while sheltering at home, our mail order wine purchases have more than doubled ...  ;)

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Posted (edited)
10 hours ago, nemo said:

I don't consider myself rich by any means, but I'm a serious saver who can almost retire.  Once my business trips kept getting moved online one by one, I liked the reduction in spending, and made it a game every month to find some expense from the previous month that I could cut.

 

10 hours ago, swimmingwithsharks said:

Rich is often a relative term ("anyone with more money than me"). But this crisis has shown the value of independent means, which is out if reach of many, often because either they're too young to have time to have saved,  chose not to, or didn't know how.

 

It is a reminder that everything is fleeting, including jobs. But creating your own space and undepleted nest egg remains great advice. 

The story contains a link with more detail, but apparently there are three buckets of relative "richness," and you belong in one of them based on income statistics for your ZIP code.

 

Stomp through the Walmart in our ZIP code and get back to me.

 

5bZW585.png

Edited by cv91915

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Thanks for highlighting the supporting chart link, cv.  It added much substance to the article.  It also suggests that the authors are fixated more on the data "downside" than its upside ...

 

I find it noteworthy that at the peak of the decline in consumer spending, the decline by economic sector (high/low/middle income) was fairly uniform (36%/32%/30%).  As an aside, one expects the decline to increase as income goes up simply because discretionary spending progresses to a higher percent of overall spending.

 

As of the most recent data points in the chart, spending has recovered to the following spread:  17%/10%/4%.   I don't find this pace/disparity in spending recovery at all anomalous.    It again reflects the fact that it's the nature of discretionary spending to be less "essential" and often of a less "in the moment" nature.  At the peak of the state shutdowns, people were directed to shelter at home (limiting excursions to "essential" needs.)  Retail spending dropped accordingly (where stores were open).  Once restrictions lifted, most day to day spending rebounded.

 

On discretionary front, I expect that adage "once bitten, twice shy" played out a numerous ways.  By virtue of the fact that we're talking discretionary spending, people have consideration discretion in deciding when (or whether) to resume that spend.  In a modestly extreme example, we were booked for a Mediterranean cruise in May.  We didn't rebook for June or July ... or at all, for that matter (we're waiting to see how things play out and for a new window that works for us and our nephew's family).

 

Just as I have no doubt that we will rebook the cruise, and I have confidence that deferred discretionary spending will eventually bubble up through the economy once the COVID situation settles into something that is a better anticipated trend.  (The distortion between general perception and reality at present is a huge problem that concerns me in the short term.)

 

So, the article is on-track in suggesting that the continued decline in spending since COVID appeared on the scene is largely attributable to reductions in discretionary spending by the flusher segment of our economy.  But it misses the silver lining in that:  Rather than relying upon modest income households to gain the confidence to go out and buy a new car or a washer/dryer to spur the economy, all that's necessary is for the current sense of "what's falling out of the sky next" to disperse from the perceptions of the wealthy ... something I expect will happen quickly.  Once that has occurred, I expect we'll see spending outpacing that of the prior year practically overnight.  (I never doubt the capacity of the well-heeled to spend and indulge.)

 

 

 

 

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"So, the article is on-track in suggesting that the continued decline in spending since COVID appeared on the scene is largely attributable to reductions in discretionary spending by the flusher segment of our economy.  But it misses the silver lining in that:  Rather than relying upon modest income households to gain the confidence to go out and buy a new car or a washer/dryer to spur the economy, all that's necessary is for the current sense of "what's falling out of the sky next" to disperse from the perceptions of the wealthy"

 

Not so sure I agree with this. Ever since Gov. Newsom issued an executive order to shutdown California on March 16th, I am finding that the "rich" (subjective to your local province) are re-assessing their spending habits and are making lifestyle changes in part to at a minimum, hold on to their money, and increase their savings and re-evaluate their overall financial picture (e.g. less discretionary spending). When a local Mall reopened, I believe they were somewhat disappointed in the people willing to come back and buy. Hopefully, the tide will turn, but the neighbors I am talking to are all about saving, not spending, and that covid-19 has "changed" them at least in the short-term.

 

 

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5 hours ago, hdporter said:

all that's necessary is for the current sense of "what's falling out of the sky next" to disperse from the perceptions of the wealthy ... something I expect will happen quickly. 

 

1 hour ago, NorCalR1 said:

 Hopefully, the tide will turn, but the neighbors I am talking to are all about saving, not spending, and that covid-19 has "changed" them at least in the short-term.

 

 

 

Memories are short, people are fickle.  The short-term you refer to is the period it takes for general perception to catch up to reality.  When that happens, the course of the pandemic will be much more predictable to the general populace (even with the inherent bumps).  I predict that "catch up" will happen around the end of August. 

 

(In the interim, I expect another roller coaster wave of unreasonable expectations/response and financial market impact.  The updated COVID-19 infection/death numbers reported in the last week have prompted me to liquidate another set of holdings to take my retirement portfolio to 60% equities - from 88% at the start of the year.)

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other than paying essentials (1040ES, scotch, Malbec, chocolate, and HOA) there is nothing I need so I don't buy.

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Posted (edited)

Thanks, @cv91915, for that chart.  I was actually floored to see how small the average reduction in spending was.

 

During one 30-day period, I made an on-the-fly estimate that due to lack of travel, my spending was down about 90% from normal for just those 30 days.  I believe I was so amazed at that estimate that I mentioned it somewhere here on CB.

 

At this point, I have more hard data spread over a longer period, and for March through May, my total spending for those three months was down 54% from the same period last year.  I'm really liking the results for my financial health, which is why I still try to cut more every month.

 

The rebound will not be total.  Not all of my international meetings will return.  People are figuring out that they can get the same things done with less travel and more online meetings, and they (or their employers) enjoy the savings the same way I enjoy looking at how much I can cut.  Some real meetings will return, but we've come to realize that we don't need nearly as many as we used to have.

Edited by nemo

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I'm not surprised that overall consumer spending isn't down huge amounts. Most people not in the higher incomes  don't really spend that much on optionals. And the middle and lower classes got an extra $1,200. There is also the unemployed but they also get unemployment that is boosted by an additional $600/wk. In some cases they are making more unemployed than employed. But that's ending shortly.

 

People that are most screwed are small business owners that own small restaurants, bars and such. Many are closing for good or will be sold in BK.

 

However, well off folks like well off retired and upper income types that can work at home and continue to get paid are doing just fine. They just aren't spending, going on vacations, going out to dinner and shows, etc.  Those are the people saving and the businesses they used are the ones that are hurting. And those are way down.

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1 hour ago, nemo said:

Thanks, @cv91915, for that chart.  I was actually floored to see how small the average reduction in spending was.

 

During one 30-day period, I made an on-the-fly estimate that due to lack of travel, my spending was down about 90% from normal for just those 30 days.  I believe I was so amazed at that estimate that I mentioned it somewhere here on CB.

 

At this point, I have more hard data spread over a longer period, and for March through May, my total spending for those three months was down 54% from the same period last year.  I'm really liking the results for my financial health, which is why I still try to cut more every month.

 

The rebound will not be total.  Not all of my international meetings will return.  People are figuring out that they can get the same things done with less travel and more online meetings, and they (or their employers) enjoy the savings the same way I enjoy looking at how much I can cut.  Some real meetings will return, but we've come to realize that we don't need nearly as many as we used to have.

If you set April aside, my personal travel hasn't changed.  Business travel has been zero since Feb/March, though.

 

A couple of weeks ago I attended a conference online.  This is normally a useful conference, but the keynote/"ballroom" types of presentations were scripted and recorded, and they fell completely flat.  I also found it impossible to focus on the rest of the sessions because email and IMs were constantly coming in on the same device as the video from the "conference."

 

Right now I just need a vacation, but no one wants to go anywhere.  :)

 

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5 hours ago, cv91915 said:

Right now I just need a vacation, but no one wants to go anywhere.

I hear you.  I have a very vacation-like life at this point, and yet I feel like I need a vacation.

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1 hour ago, nemo said:

I hear you.  I have a very vacation-like life at this point, and yet I feel like I need a vacation.

There are some good deals for biz class to Europe for later in the year. I'm thinking about MXP in November.

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2 hours ago, hegemony said:

There are some good deals for biz class to Europe for later in the year. I'm thinking about MXP in November.

 

Intrepid.  (You understand that Milan has been described the epicenter of the N. Italian COVID infections, right?)

 

Still, November may not be a bad bet (especially if you can score a ticket with no cx penalty -- are they doing that for int'l travel right now?)

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6 hours ago, hegemony said:

There are some good deals for biz class to Europe for later in the year. I'm thinking about MXP in November.

The Admiral Hotel is James Bond-themed.

 

I know this because I used to be less autocratic about our lodging decisions.

 

 

 

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This is an interesting article and discussion. I am in the predicament of being someone in the middle income range, but I have been pretty strict with spending for the past few years in order to get out of debt. I still have debt (all student loans) and a straightforward plan to get rid of it all in the next year or so, but the pandemic has not really changed my outlook on spending. I am still putting everything extra I have into paying off debt. If anything, my spending has gone up. I have been spending more at the grocery store, Costco, and Target to make my food choices and home better than it was before all this happened. But I think I might have spent maybe $150 eating out last month, so just a few meals. All of the stimulus money I received went to pay down debt.

 

I recently realized I needed to upgrade my technology setup because my work is outpacing the computer I am using. I begrudgingly decided to buy a new computer, but then changed my mind once I found out Apple is coming out with new ones next week and it would be better just to wait. I instead bought a new external drive to make things work a little better in the meantime. I wouldn't call the computer discretionary because I am going to use it for my business and depreciate it over 5 years, but I could continue to keep struggling with my current one a little longer.

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1 hour ago, hegemony said:

Had Skype coffee with a friend today and he is trying to talk me into a G-wagon. I told him I'm ashamed he thinks I am the kind of person who would drive one.

It's Covid-19 ready! It would be easy to social distance in the monster.

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2 hours ago, hegemony said:

Had Skype coffee with a friend today and he is trying to talk me into a G-wagon. I told him I'm ashamed he thinks I am the kind of person who would drive one.

Why?  Don't you traverse dry river beds daily ???

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20 minutes ago, hdporter said:

Why?  Don't you traverse dry river beds daily ???

I already have an old 4x4 that serves me well on gravel, dirt, arroyos, and sand (not a rock climber). G-wagon would cost more than my first house.

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