US Middle Class Is Shutting Down As Spending By The Rich Remains Robust

Inflation and higher mortgage rates squeezing American households

After dismal earnings by such mammoth retailers since Walmart, Targets and this morning’s “ horror report” by Abercrombie and Fitch, on Tuesday afternoon we actually got a solid report by Nordstrom, which not only printed strong income but also hiked guidance delivering the stock higher as much as 12%.

What was behind the curve? Simple: as JPMorgan writes in its trading desk marketplace recap, JWN earnings highlighted the divergence among consumer spending by income brackets.

Picking up on this, Bloomberg’s Felice Maranz writes that the latest earnings plus comments from big-bank professionals reinforce the view that even though spending by lower plus middle America may be dropping off a cliff, spending by well-off US customers is still  robust, with scant sign of a pull-back.

Bloomberg also points to department store  Nordstrom which is jumping following the bell after boosting its revenue and earnings  perspective. The company, unlike so many from the peers who have seen their stocks crater following Q1 earnings, said core groups in 1Q — including men’s and women’s attire and shoes – noticed strong growth with shoppers “ refreshing” wardrobes with regard to social events, travel and going back to offices.

And since the wealthy are far less impacted by increasing prices in the core staples basket, there were no indications of a hit from inflation possibly, as merchandise margins for that likes of Nordstromg enhanced due to pricing and reduce markdowns. That followed an early on beat from that various other upper/aspirational-class targeting retailer, Ralph Lauren, which was also capable to raise prices, helped by resilient, affluent customers, as well as from electronics retailer  Greatest Buy.

At the same time over in Davos, BofA CEO Brian Moynihan stated US consumers (at minimum the rich ones) have  money to spend and had been unlikely be deterred simply by inflation and economic gloom. That’s similar to JPMorgan main Jamie Dimon’s  reassuring remarks  on Monday.

The price of a  new home  – also a type of an extravagance good – rose within April as well as prices surged while transactions tumbled because the middle (and lower) class is increasingly shut from home purchases…

…. with the bulk of buying taking place at the ua luxury as seen by the record divergence between average plus median home prices…

… though since Bloomberg warns, there are queries about how long that divergence can continue as inflation and higher mortgage rates squeeze all American families.

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