SOURCE: American Affluence Research Center

April 24, 2008 15:46 ET

Affluent Market Calls Recession Before the Economists; New Survey Reveals Who Is Not Reducing Expenditures and Who Is Cutting Back Due to Concerns About Rise in Every Day Expenses, the Poor Economy, and Decline in Stock Market

ATLANTA, GA--(Marketwire - April 24, 2008) - While the economists are waiting for more data before officially declaring a recession, the affluent market has clearly recognized the poor state of the economy. In a new survey of the wealthiest 10% of US households, the index of 52 for current business conditions represents a sharp drop of 56 points from the Fall 2007 survey and is at its lowest level since the Fall 2002 survey. Index values can range from 0 (negative) to 200 (positive), with an index of 100 being a neutral reading.

This survey, the thirteenth in a series of twice yearly tracking studies by The American Affluence Research Center, reveals which segments of the affluent market are reducing or deferring expenditures (and which are not) due to current economic conditions, why they are reducing their expenditures, and for what types of products and services spending is being cut back. This survey also explores what types of mortgages, if any, exist on the primary residence, how much equity exists in the home's value, and how these factors may influence future spending plans.

The survey is representative of the wealthiest 10% of US households, which, according to the Federal Reserve Board's latest research, account for almost 70% of the total net worth of all US households and 40% of total US household income, thus representing about 33% of the total US economy.

Highlights of this national survey of 467 affluent men and women can be found at www.affluenceresearch.org. The survey participants have an average income of $316,000, an average net worth of $3.1 million, and average investable assets of $1.5 million. Those with the highest incomes, net worth, and equity in their homes tended to be more positive in their spending plans and less likely to be cutting back.

The composite Affluent Consumer Expectations (ACE) 12-Month Economic Outlook Index of 102, while hovering near historic lows, still represents a modestly positive outlook overall. Despite the negative index of 99 for future business conditions, the composite index essentially held even with the Fall 2007 survey due to modest increases in the indexes for business conditions and the stock market. The index for household income, the third element of the composite index, was down slightly but still in positive territory.

Over half of the respondents have no plans to make any of 8 major expenditures in the next 12 months. This is an historic high for this survey. Plans for motor vehicle acquisitions and building a new primary residence are at historic lows. Major home remodeling equaled its historic low. Plans to cruise are effectively at a historic low. Plans to acquire a vacation residence (by building new or purchasing an existing home) have never been lower, other than in the Fall 2005 survey.

Of the 17 categories of products and services, for which expected changes in spending are tracked, only one (domestic vacation travel) is in positive territory. The indexes for 8 of the 17 categories equaled or established their historic lows The Future Spending Index average of 87.3 is at an historic low.

Almost 8 in 10 of affluent Americans have a mortgage on their primary residence. About 40% of those 60 years plus and 47% of those with net worth of $6 million plus have no mortgage. Over two-thirds of those with mortgages have equity equal to 50% or more of the residence value.

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