Why This Is a Rich Man's Economic Recovery

Stores that cater to the well-to-do see sales rise while those aimed at the middle class and lower struggle. Here's what that means to the economy, the president and investors.

A rising tide is supposed to lift all boats.

Is Obama's economic plan working?

Recent shopping trends show that the wealthy are living it up again -- spending on expensive jewelry, luxury handbags, designer clothing and other high-end pleasures. But the recovery has done little to boost the spending of the average wage earners shopping at places such as Target (TGT, news, msgs).Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 304, 314, {"configCsid": "MSNmoney", "configName": "player-money-4x3-articles-inline", "player.vcq": "videoByUuids.aspx?uuids= 13bdb264-806b-4f8c-bd51-3f716e87cda7,1f4295e5-491d-4713-9648-f95582386209,0952df91-0c12-4b9b-9108-d85d9ccdb47f,7f2220b6-723f-4f11-ad9e-8a52caa434b8,3612d881-e6a6-4c59-9b2a-8db7c9a89fe4,e49a53cf-0bd0-4ebb-b960-c47802887128,c6ef36f4-3db4-4454-8141-add6f66bcca3,5b31a35e-63f3-4094-9242-f1577c7f0012,fc95a272-0528-4bfa-8dee-ff68850544bf", "player.fr": "iv2_en-us_money_article_Investing-CompanyFocus-inline"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=13bdb264-806b-4f8c-bd51-3f716e87cda7,1f4295e5-491d-4713-9648-f95582386209,0952df91-0c12-4b9b-9108-d85d9ccdb47f,7f2220b6-723f-4f11-ad9e-8a52caa434b8,3612d881-e6a6-4c59-9b2a-8db7c9a89fe4,e49a53cf-0bd0-4ebb-b960-c47802887128,c6ef36f4-3db4-4454-8141-add6f66bcca3,5b31a35e-63f3-4094-9242-f1577c7f0012,fc95a272-0528-4bfa-8dee-ff68850544bf;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');The reasons for this dichotomy are fairly straightforward, reflecting overall trends in the economy:

On the one hand, the country is still out the 8 million jobs that vanished during the recession. One in six people is out of work, and many who have jobs are worried about losing them. Though job losses have hit every level, the wealthy have bigger cushions to fall back on.

On the other hand, the stock market has rebounded sharply; it's up about 70% from the lows of a year ago. Driven by this, household net worth advanced $5.7 trillion from last March to $54.2 trillion at the end of last year. The benefits tilt strongly toward the wealthy, who have proportionally more of their money, and simply more money, invested.

The nation's cash registers show the impact of this as well as anything. Wealthier Americans feel confident enough that they've started shopping again, boosting sales at higher-end retailers such as Tiffany (TIF, news, msgs), Nordstrom (JWN, news, msgs) and Coach (COH, news, msgs).Click graphics to see interactive chartsNordstromWal-Mart StoresHere's something else that helps the wealthy: Though hiring is scarce, executive bonuses are flowing, and they are definitely back on Wall Street after falling sharply in 2008. And sales at Tiffany's flagship store in New York City shot up 20% over the past holiday season.

Working middle-class families, meanwhile, remain antsy about spending. And sales at the places they generally shop, like J.C. Penney (JCP, news, msgs), Target, Wal-Mart Stores (WMT, news, msgs) and Macy's (M, news, msgs), continue to languish.

The bottom line: Although President Barack Obama's $800 billion stimulus package, along with the bank and auto-sector bailouts, were meant to lift the economy as a whole, the effects so far have been felt mostly by the wealthy. Obama is presiding over a rich man's economic rebound.

"There's definitely a recovery in the upper end -- you bet," says George Whalin, with Retail Management Consultants. "The affluent consumer is really more confident that the worst is over. The lower end is really suffering badly, and I don't see any great turnaround there at all."Receipts don't lie If you still need convincing that this is a rich man's recovery, take a look deeper into shopping patterns over the past several months. Sales at stores open more than a year are the best measure of shopping trends because this strips out the effect of store openings, so that's the yardstick I use.

Longer-term sales numbers are for the most recent quarter for retailers; for most, the quarter ended with January. I've included February numbers when available. Handbags are back At Nordstrom, where shoppers can drop $2,500 on a variety of Versace New Couture handbags or $1,295 on a Burberry pleated trench coat, sales at stores open more than a year were up 10.3% in February. January was even better: Sales advanced 14%. Fourth-quarter sales increased 6.9% from a year earlier, driving earnings up 152% to 77 cents a share. All of this came despite Nordstrom's heavy exposure to economically hard-hit California.

At Coach, where handbags in a new line called Poppy typically go for $200 to $300 each but the pricier ones cost $500 or more, sales of handbags and accessories advanced 18% in the most recent quarter. Overall, North American sales were up 3%, doubling cash levels at the company to more $1.1 billion. This helped Coach buy back more shares, enriching shareholders even more.

In contrast, sales at Target, where handbags start at $8 and rarely run above $30, sales have barely budged, up 0.6% in the most recent quarter. Sales recovered a bit for a 2.4% gain in February. But tellingly, sales that month were strongest for food, household essentials and other basics. Spending on discretionary items such as apparel and decorative items for the home were flat or down in February.

"We expect progress to remain slow as consumers face historically high rates of unemployment and lack of access to consumer credit," Target chief Gregg Steinhafel said in his company's most recent conference call with investors.

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Rate this Article Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowThank you for rating.UGR('ratCntrl')High var avgRating=0;avgRating=6.642857; if(avgRating!=0){avgRating=avgRating/2;avgRating=Math.round(avgRating*100)/100;var sDisplayText="Average rating: " + avgRating + " from ";var usersCount=28;sDisplayText = sDisplayText + usersCount;if (usersCount==1)sDisplayText=sDisplayText + " user";else sDisplayText=sDisplayText + " users";avgRatingElem=document.getElementById("averageRating");avgRatingElem.innerText=sDisplayText;} View all top-rated articlesE-mail us your comments on this article Discuss in a message board MSN Money InsightNew Investor CenterMarket DispatchesJubak's JournalTop Stocks blogCompany FocusContrarian ChroniclesSmart Spending blogFast AnswersDecision CentersStart InvestingMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingRecent Company Focus Articles17 health care stocks ready to roll 03/16/2010Amazon vs. Apple: Battle of the books 03/10/2010The 10 stocks you should buy first 03/02/2010More . . .Stocks To WatchCitigroupBank of AmericaTexas InstrumentsConsol EnergyNews Corp.NintendoRed HatAtmelFinancial Crisis CoverageFund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='uierev9u8c68u7wgqhhm23nxdnhfmu44';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Add a commentShow commentsSort by:Newest firstOldest first_uc2f12('iucGo');1 - 3 of 3PreviousNextqiankunvid #1Wednesday, March 24, 2010 10:19:54 PMthis is always right in anytimeReplyReport Abuseqiankunvid #2Wednesday, March 24, 2010 10:20:19 PMReplyReport Abusenumber32inhealthcare #3Wednesday, March 24, 2010 11:59:49 PMThanks for an insightful and illuminating column that explains the increase in February sales that Jim Cramer was strangely crowing about yesterday. His column missed the boat entirely, making it appear the middle class was back on its feet and spending like crazy when it was the rich -- along with Wall Street bonus recipients -- who were responsible. Honest analysis is in short supply these days. I appreciate your providing some truth to counter the BS we get from the establishment's cheerleaders.ReplyReport Abuse1 - 3 of 3PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/CompanyFocus/why-this-is-a-rich-mans-recovery.aspx?','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*

The nation's cash registers show the impact of this as well as anything. Wealthier Americans feel confident enough that they've started shopping again, boosting sales at higher-end retailers such as Tiffany (TIF, news, msgs), Nordstrom (JWN, news, msgs) and Coach (COH, news, msgs).Click graphics to see interactive chartsNordstromWal-Mart StoresHere's something else that helps the wealthy: Though hiring is scarce, executive bonuses are flowing, and they are definitely back on Wall Street after falling sharply in 2008. And sales at Tiffany's flagship store in New York City shot up 20% over the past holiday season.

Working middle-class families, meanwhile, remain antsy about spending. And sales at the places they generally shop, like J.C. Penney (JCP, news, msgs), Target, Wal-Mart Stores (WMT, news, msgs) and Macy's (M, news, msgs), continue to languish.

The bottom line: Although President Barack Obama's $800 billion stimulus package, along with the bank and auto-sector bailouts, were meant to lift the economy as a whole, the effects so far have been felt mostly by the wealthy. Obama is presiding over a rich man's economic rebound.

"There's definitely a recovery in the upper end -- you bet," says George Whalin, with Retail Management Consultants. "The affluent consumer is really more confident that the worst is over. The lower end is really suffering badly, and I don't see any great turnaround there at all."Receipts don't lie If you still need convincing that this is a rich man's recovery, take a look deeper into shopping patterns over the past several months. Sales at stores open more than a year are the best measure of shopping trends because this strips out the effect of store openings, so that's the yardstick I use.

Longer-term sales numbers are for the most recent quarter for retailers; for most, the quarter ended with January. I've included February numbers when available. Handbags are back At Nordstrom, where shoppers can drop $2,500 on a variety of Versace New Couture handbags or $1,295 on a Burberry pleated trench coat, sales at stores open more than a year were up 10.3% in February. January was even better: Sales advanced 14%. Fourth-quarter sales increased 6.9% from a year earlier, driving earnings up 152% to 77 cents a share. All of this came despite Nordstrom's heavy exposure to economically hard-hit California.

At Coach, where handbags in a new line called Poppy typically go for $200 to $300 each but the pricier ones cost $500 or more, sales of handbags and accessories advanced 18% in the most recent quarter. Overall, North American sales were up 3%, doubling cash levels at the company to more $1.1 billion. This helped Coach buy back more shares, enriching shareholders even more.

In contrast, sales at Target, where handbags start at $8 and rarely run above $30, sales have barely budged, up 0.6% in the most recent quarter. Sales recovered a bit for a 2.4% gain in February. But tellingly, sales that month were strongest for food, household essentials and other basics. Spending on discretionary items such as apparel and decorative items for the home were flat or down in February.

"We expect progress to remain slow as consumers face historically high rates of unemployment and lack of access to consumer credit," Target chief Gregg Steinhafel said in his company's most recent conference call with investors.

Continued: Bling is backMore from MSN Money

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