Macy’s, Inc. (M), Nordstrom, Inc. (JWN), Wal-Mart Stores, Inc. (WMT): Middle-Class Caution Is Bad for Business

That balancing act can only explain so much, though. Consumers with lots of cash and no plans to relocate should be doing well. After all, they’re not in a position where they need to make choices about spending. Borrowing costs are low, and tax issues are less meaningful to them. While a study by Target Corporation (NYSE:TGT) found that about 75% of shoppers were aware of the payroll tax, and most were altering their shopping because of it, the same isn’t true at the top.

Research earlier this year found that a majority of high earners — incomes in excess of $500,000 — wouldn’t change their spending patterns based on tax increase. That’s good news for companies at the highest end of the consumer spectrum, including handbag designers and jewelry makers.

Cautious spending is the new normal
There is an oddly phrased quote from a Wells Fargo analyst claiming that consumers won’t be “spending with abandon” until there is a meaningful increase in wages. I’m not sure anyone really wants that brand of spending, but all signs do point to a much more cautious consumer for the foreseeable future.

Research from MasterCard Advisors claimed that consumers are going to keep putting off their wants to fulfill their needs. The real message is that consumers are still in a position where they have to choose between wants and needs. Wages are forecast to climb around 3% on average this year, which is only one percentage point ahead of inflation.

Consumers are going to be holding on to more of their cash, and spending it on very select items. That’s going to mean bad news for retailers at most points along the economic spectrum. While the higher end may dodge some of the suffering, even they will lose out on the aspirational purchases that a healthy middle class often makes. Until wages start to increase their pace or consumers learn to adjust to the change in payroll tax, it’s going to be tough times ahead for retailers.

The article Middle-Class Caution Is Bad for Business originally appeared on Fool.com and is written by Andrew Marder.

Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Wells Fargo.

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