Ahead of US midterms, luxury spending falls for third month. What it says about consumers

US luxury spending fell for a third consecutive month in September, offering another sign that American consumers are becoming more cautious as the country heads towards the November 3 midterm elections.

Credit card purchases of luxury goods fell 6 per cent from a year earlier in September, following declines of 4 per cent in both July and August, according to Citi data covering millions of transactions. The slowdown comes at a sensitive time for the US economy, with consumers facing persistent price pressures, higher borrowing costs and growing concerns about jobs.

For luxury brands, the US had been one of the markets expected to provide support as demand weakened in China and elsewhere. Wealthier Americans, including a growing group of technology and AI millionaires, have helped sustain spending at the top end of the market.

But even that support is showing signs of weakening.

Citi said spending on leather goods and ready-to-wear improved sequentially in September. Demand for watches and luxury jewellery, however, deteriorated further. Brands with greater exposure to affluent consumers could remain relatively resilient because of gains in equity-market wealth, the bank said.

The broader consumer picture is less comfortable.

The Conference Board’s consumer confidence index fell 6.7 points to 81.9 in September from 88.6 in August. Both consumers’ assessment of current conditions and their expectations for the months ahead weakened.

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The share of consumers who said jobs were plentiful fell to 23.6 per cent from 24.5 per cent, while those saying jobs were hard to get rose to 21.9 per cent from 20.3 per cent. Expectations for income also weakened.

The University of Michigan’s consumer sentiment index fell to 48.1 in September from 51.7 in August and 55.1 a year earlier. The survey found that concerns over high prices and interest rates were weighing on views of personal finances and the broader economy.

The labour market is also showing signs of cooling. US employers added just 29,000 jobs in September, while the unemployment rate edged up to 4.2 per cent. Employment gains for July and August were also revised down by a combined 60,000. Average hourly earnings rose 3 per cent over the year.

Yet the data do not point to an outright collapse in consumer spending.

US consumer spending rose 0.9 per cent in August after being broadly flat in July. The increase was supported by spending on cars, restaurants and clothing, although higher prices for essentials such as fuel and healthcare continued to put pressure on household budgets.

The wider economy has also remained resilient. Real US GDP grew at an annualised 2.2 per cent in the second quarter, following 2.5 per cent growth in the first quarter. Consumer spending, investment and exports contributed to growth.

That creates an important tension ahead of the midterms. The US economy is still expanding and consumers are still spending, but confidence in the economic outlook has weakened.

Inflation remains a particular concern. The personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, rose 3.4 per cent year-on-year in August, well above the central bank’s 2 per cent target. The combination of elevated prices and interest rates has made households more cautious about their finances.

For luxury companies, that caution is becoming harder to ignore. Morgan Stanley has warned that the prolonged downturn in luxury spending leaves brands with limited room for a return to sustained growth after two consecutive years of contraction. LVMH, considered a bellwether for the sector, is due to report third-quarter sales on October 12, while Gucci owner Kering reports on October 22.

The US consumer is therefore not simply cutting spending. Rather, the latest data suggest a more uneven picture, with overall consumption holding up while confidence, discretionary spending in some categories and expectations for the labour market weaken.