By MARK JEWELL - AP Business Writer
Published - Aug 03 2008 06:52PM EDT | AP
The rich are sharing your financial pain _ and contributing to it.
Itmay have taken longer and it may not be as acute, but there are earlyhints that the economic slump is crimping the lifestyles of the wealthy.
Theyare investing more conservatively, spending less on luxury goods andare being more thrifty with their credit cards. Many are asking theirpersonal shoppers and private-jet travel providers to seek the bestdeals rather than over-the-top extravagances.
That news may produce a shrug from many people who have lost theirjobs or homes in this economy. The problem is that when the wealthy getstingy, it trickles down to the rest of us.
"It's a sluggisheconomy, and its difficulties are felt all over," said Joseph DiRenzo,a married 38-year-old father of three who left a hedge fund two yearsago to enter commercial real estate.
DiRenzo says he's feelingthe hit in many places, especially in the value of his house on LongIsland's upscale Gold Coast in Muttontown, N.Y.
He owns the kindof place you'd expect a former hedge-fund manager would call home: sixbedrooms, seven full baths, hand-crafted Italian doors throughout,high-tech security and sound systems, and 9,000 square feet of livingspace on 2.4 acres.
It can be had for $7 million _ a good deal,he says, when you consider his next-door neighbor's comparable homesold for $9 million last fall. He has cut the price twice in the 12months it's been on the market.
DiRenzo is looking for a smaller,cheaper home. He also may buy a hybrid to supplement the two MercedesBenzes in his heated four-car garage. And, he's driving less these days.
The DiRenzos aren't unlike many American families cutting back to weather a downturn. They're just richer.
To be sure, the poor and middle-class are being hurt more, but uppercrust thriftiness could reverberate across the rest of the economy.
The10 percent of households with the highest incomes account for nearly aquarter of all spending, according to data compiled by research firmMoody's Economy.com from a 2006 federal survey.
"That doessuggest those folks are important for the spending outlook, and theoverall economic outlook," said Scott Hoyt, Moody's director ofconsumer economics.
Other government data show households in the top one-fifth of theU.S. population ranked by income earn about half of all total personalincome before taxes _ an imbalance that gives the wealthy immenseeconomic clout, said Sara Johnson, an economist at the research firmGlobal Insight.
"Consumer spending makes up 70 percent of grossdomestic product, and when one group accounts for a very substantialshare of consumer spending, they also account for a large share of theeconomic activity that creates jobs," Johnson said.
On Friday,the Labor Department reported that the unemployment rate had jumped tothe highest in four years. The housing slump, tighter credit, high fuelprices and a lack of confidence is causing employers to cut expansionplans, or even let employees go.
It doesn't help when your customer base is pinching its pennies, either.
"Alot of our clients stop by a deli on the way to the airport, ratherthan have a catered meal on the plane" costing $50 per boxed lunch,said Justin Sullivan. Sullivan is the founder of Regent Jet, anAndover, Mass.-based broker that buys blocks of aircraft time to trimcosts for high-end clientele whose multi-leg itineraries can sometimesexceed $100,000.
Trevor Gilman, a professional pilot, says hischarter service out of western Massachusetts' Berkshires Mountains hasflown about half as many miles so far this year compared with the sametime last year. Consequently, the service hasn't replaced a handful ofemployees who recently found other work or retired.
"We're down to a total of two crews for three airplanes," Gilman said.
Unity Marketing, a Stevens, Pa.-based firm whose clients includeretailers in the more than $322 billion U.S. luxury goods market, saidits latest poll of affluent people nationwide found a 20 percentdecline in spending on luxury goods in this year's second quarter, andthe lowest luxury consumer confidence level in the nearly five yearsthe survey has been conducted.
Just over half of the 1,024respondents earning an average income of $204,800 predicted they wouldspend less on luxury in the coming 12 months than they did a year ago.
Luxuryspending fell 4 percent last year, and this year's decline is expectedto be steeper, particularly for luxury handbags and clothing that don'thold value, Unity Marketing President Pam Danziger said.
"We face a very different environment for luxury indulgence in 2008as compared to 2007," said Danziger, who predicts "a very difficultmarketplace for luxury goods over the next five years."
For mostAmericans, the choice has been whether to give up small indulgences,such as eating out or going to the movies, to help defray the risingcost of food and fuel.
For the wealthy, the choices have been different.
"Peopleare examining, 'Do you keep the yacht, do you go to the classic carauction, do you take the private jet?'" said Joseph Montgomery,managing director of investments at Wachovia Securities. "Those soundlike nice problems to have, but at the same time, they are issues."
Althoughthe rich may be suffering somewhat, most have a far bigger financialcushion to ride out hard times than folks living paycheck to paycheck.
DiRenzo said that despite two price cuts to his home totaling $200,000, he doesn't plan any more.
"The high-end buyers out there are maybe more selective now, but I'm willing to wait out the storm," he said.
That hasn't been an option for many Americans who have been swept up the maelstrom of foreclosures.