Buoyant consumers have been the stabilizing force in an otherwise wobbly economy, but the stock market's current nose dive is raising questions about how long that can continue.
Retailers of luxury goods and services say they already are feeling the pinch of the market downturn, and economists fear the pain may spread.
"If the stock market continues to fall, it will affect everything, including houses and sales of consumer goods in general," said Sung Won Sohn, chief economist for Wells Fargo & Co. "None of us will be escaping the effects of the stock market plunge. Even if the stock market bottoms, the effect will linger on for a while. And the higher the price tag, the greater the effect."
The latest retail sales figures reported by the government show spending was up slightly in June compared with last year, but some merchants say they are seeing a change in spending habits.
"Where people were upgrading, upgrading, upgrading before, oblivious to cost, they are now trying to work deals and pinch pennies like you've never seen," said James Ahern, a travel agent specializing in adventure safaris and international cruises at First Class Travel in Phoenix. "And these are people who have the money. I know they have the money."
At Melisse, a French-American restaurant in Santa Monica where the average dinner check per person is $85, reservations are off by 20% this week, said general manager Michael Morrisette.
"I think people are getting a little scared and thinking twice before going out to dinner," he said. "Maybe instead of going out three or four times a week, they're eating out two times."
The shaky economy and tumbling stock market have led Hildegard Scolari, 65, of Newport Beach to cut back on shopping and travel.
"I can't spend money that I no longer have," said Scolari, a retired fashion industry executive who is invested heavily in the market.
Yacht dealer Gordon Barienbrock certainly wasn't glad to hear that the stock market had slid an additional 234.68 points on Monday. To cope with slackened demand, he said he has been forced to cut prices.
"The sale of luxury yachts is generally directly correlated to the stock market," he said. "When you buy boats like that, you have to feel rich."
The luxury market aside, however, some economists dismiss the idea that the market downturn will make a big dent in overall consumer spending, which accounts for two-thirds of the U.S. economy.
