U.S. luxury spending slowdown deepens ahead of midterm elections

Traders Union
All News
Financial News
US luxury spending slowdown

Highlights

Citi reports U.S. luxury credit card spending fell 6% year-on-year in September, marking a third consecutive monthly decline after 4% drops in July and August.
Leather goods and ready-to-wear categories saw slight sequential improvement, but watches and luxury jewellery weakened as price hikes by soft luxury brands remained in the low single-digit range.
Growing economic caution ahead of U.S. midterm elections and rising Treasury yields prompt Morgan Stanley and others to warn of limited near-term luxury growth, with key earnings from LVMH on October 12 and Kering on October 22.

Citi data points to another monthly decline

As reported by Reuters, citing Citi, U.S. credit card spending on luxury brands falls for a third straight month in September, with overall purchases down 6% from a year earlier after 4% declines in both July and August.

The research note says continued wealth growth among affluent consumers is still supporting the very top end of the market, but broader demand is weakening. Citi adds that brands with greater exposure to higher-end consumers should remain relatively resilient, helped by equity-market wealth effects.

Category trends are mixed. Spending on leather goods and ready-to-wear items improves sequentially in September, while watches and luxury jewellery weaken further. Citi also says most soft luxury brands selling apparel, shoes and leather goods have raised prices by low single-digit percentages so far this year, slightly below the low to mid-single-digit increases from watch and jewellery makers.

The brands seen as most exposed to the U.S. market include Tapestry, owner of Coach and Kate Spade, France's LVMH and Italy's Ferragamo.

Election uncertainty clouds sector outlook

Consumer caution is building as the U.S. heads toward the midterm vote, with recent surveys from the Conference Board and the University of Michigan also showing growing unease about the economy. Economists say higher U.S. Treasury yields and mortgage rates could add to the slowdown by weighing further on household and business spending decisions.

For the luxury industry, that creates a more difficult backdrop after a prolonged downturn. Morgan Stanley analysts said in September that weaker U.S. luxury demand leaves brands with limited room to deliver the long-awaited return to growth after two consecutive years of contraction.

Attention is now turning to the coming earnings season for signals on demand. LVMH, widely viewed as a bellwether for the sector, is due to report third-quarter sales on October 12, while Gucci owner Kering is set to release earnings on October 22 after warning analysts last week to expect a slowdown in the U.S. market, according to Italian brokerage Equita.

Our earlier article on the White House weighing a federal petrol tax suspension explained how the administration was considering steps to ease consumer costs ahead of the midterm elections as gasoline and diesel prices surged. We noted that record diesel costs can ripple through trucking and manufacturing and feed into broader inflation, adding pressure on household budgets.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.