affluent Individuals are becoming cautious with their spending habits.

Affluent citizens are becoming more mindful with their expenditures.

A rewritten version of the story goes as follows:

The recent years have witnessed an increase in the household wealth of Americans, despite the challenges of high inflation and the Federal Reserve's efforts to control price increases through increased borrowing costs. The Federal Reserve's latest report on household finance reveals that a thriving stock market and higher home values have contributed to this surge in wealth, which is commonly referred to as the "wealth effect." This wealth effect has allowed Americans to cope with inflation to some extent, while also spending on items like travel, concerts, and other luxury goods.

Moreover, American homeowners who obtained mortgages before the Fed initiated interest rate hikes in 2022 have benefitted from the low borrowing costs, shielding them from the effects of high mortgage rates. As a result, the US economy witnessed a significant growth spurt in 2023, with the consumer playing a major role. The majority of the households with wealth in the US are older than 54, as per Fed data, amounting to more than 70%.

However, the economic growth has experienced a slight deceleration lately. The data on employment and retail spending for April revealed that the figures were weaker than anticipated. Although the broader economy remains fairly healthy, including a sub-4% unemployment rate, some indicators suggest that this turning point is significant. One such sign is the shift in behavior among wealthy Americans.

According to Nanette Abuhoff Jacobson, global investment strategist at Hartford Funds, "It's well known that the lowest income consumer is really struggling with inflation, but from a purely economic standpoint, it's the higher quintiles of earners that do the most spending."

Evidence of wealthy Americans becoming more cautious can be seen in the latest company earnings. British luxury retailer Burberry witnessed a 40% drop in its profits in the fiscal year ending in March. Sales in the Americas decreased by 12% year-on-year. Burberry's CEO, Jonathan Akeroyd, stated, "Executing our plan against a backdrop of slowing luxury demand has been challenging."

LVMH Moët Hennessy Louis Vuitton reported a sharp decline in demand for high-end liquors in the US, resulting in high inventories in their alcohol division. Walmart, which primarily serves lower- and middle-income Americans, reported last week that its growth in the previous quarter was largely driven by upper-income households, i.e., those earning more than $100,000 a year.

Despite these concerns, the situation isn't all grim. Royal Caribbean Cruises exceeded expectations for its first-quarter earnings, as strong bookings and onboard spending supported the cruise line's performance. The growing demand for cruises—a sector catering mainly to wealthier individuals—shows that the affluent have not yet cut back significantly on their spending.

Nevertheless, some wealthy Americans are becoming more cautious while making purchases. Consumers, as a whole, have become more price-sensitive, and several widespread examples in the Fed's periodic reports, commonly referred to as the Beige Book, share these stories.

Jacobson of Hartford Funds observes, "When we talk to CEOs and CFOs, they're saying that people are pushing back, so companies now aren't feeling as comfortable pushing through price increases."

In addition to the unfavorable trend in credit card debt among Gen Z borrowers, credit card usage is another aspect that deserves attention. According to research from the Federal Reserve Bank of New York, one in seven (15.3%) Gen Z credit card users have maxed out their cards, compared to just 4.8% of Baby Boomers and 9.6% of Gen Xers. This level of credit card debt could be an indication of a severe cash-flow problem.

Looking ahead, we can expect earnings from Palo Alto Networks, Trip.com, and Zoom on Monday. Federal Reserve officials Michael Barr, Christopher Waller, Philip Jefferson, and Raphael Bostic are scheduled to make speeches. On Tuesday, earnings will be released from Lowe's, AutoZone, Macy's, and Urban Outfitters. Additionally, several other Federal Reserve officials will make comments and presentations, including Christopher Waller, John Williams, Raphael Bostic, Michael Barr, Loretta Mester, and Susan Collins.

Hump Day: Looking forward to results from NVIDIA, TJX, Target, Guess?, Petco, and The Children's Place. The UK's Office for National Statistics has April's inflation data coming out. The National Association of Realtors will share their findings for April home sales. The Fed will publish minutes from their May policymaking gathering.

Thursday: Anticipating earnings updates from Intuit, Medtronic, Workday, Ross, Dollar Tree, Burlington, Ralph Lauren, Build-A-Bear Workshop, and 23andMe. The US Labor Department should let us know how many jobless claims were filed in the week of May 18. The Chicago Fed is scheduled to release their April National Activity Index. S&P Global will share April's business surveys, measuring the state of the US manufacturing and services industries. The US Commerce Department will give us insight into April's new home sales. Atlanta Fed President Raphael Bostic is set to speak.

Friday: Eager to see results from Booz Allen Hamilton, Buckle, and Big Lots. The US Commerce Department will disclose April's new orders for durable goods. Fed Governor Christopher Waller has scheduled a speech. The University of Michigan is set to release their last ditch survey for May's consumer sentiment.