Even Rich People Are Starting to Get Nervous About Trump’s Economy

If U.S. stock prices continue to fall, wealthy consumers could slow their spending, putting further pressure on the U.S. economy and markets.

That could mean everything from fewer luxury cars and handbags being sold to reduced demand for top-end homes and fancy vacations.

Broadly, retail sales rose a less-than-expected 0.2% in February from January, the Census Bureau reported earlier this week. There are signs affluent consumers are holding back, too. Major airlines cut their guidance for the first quarter last week on expectations of weak demand. And U.S. credit-card spending on top luxury brands declined 5% year over year in February, Citi reported on March 11.

Though it’s “too early to tell” whether spending will contract, every dollar decline in the value of assets, such as stocks or real estate, leads to a two cent decline in spending among “upper-end consumers,” according to Joseph Brusuelas, chief economist at RSM U.S.

Brusuelas’ calculation describes the so-called negative wealth effect, when a decline in investment portfolio value affects consumer attitudes toward how much they can spend.

Today, the S&P 500 is struggling, down just over 1% on Tuesday , leading to a 4.5% decline year to date, after slipping into correction territory last Thursday.

Even that 10% decline doesn’t mean a pullback in spending by the affluent is imminent, Brusuelas told Barron’s .

But the “volatility, uncertainty, complexity, and ambiguity,” in geopolitical, economic, and market news coming out of the U.S. doesn’t bode well for luxury spending in particular, according to Erwan Rambourg, global head of consumer and retail research at HSBC.

“Luxury demand is holding up in the U.S., but I’m not sure for how long,” Rambourg told Barron’s . “There might be a lag between the data points, the markets, and the actual spending.”

In addition to sharp declines in stocks and cryptocurrency since mid-February, affluent Americans are facing a decline of 5.39% in the value of the U.S. dollar against the euro this year. By contrast, the euro lost 6.2% against the dollar last year.

The dollar’s decline not only affects the price of luxury goods—many of which are made in Europe—but the desire of U.S. consumers to travel and spend across the Atlantic, according to HSBC.

Another challenge is the uncertain trajectory of tariffs on goods from Canada, Mexico, and Europe.

“I’ve always thought that you bought luxury not because you were wealthy, but because you were confident about the future,” Rambourg said. “The whole tariff conversation—the reversals on Canada and Mexico—one day it’s 25%, the following day it’s postponed by a month, the following day, you have some exceptions…if you’re a business manager and if you’re a consumer, obviously that will affect your confidence in a big way.”

Still, wealthier consumers have a significant buffer in their investment portfolios, which have grown substantially over several years of upward equity returns, according to Katie Nixon, CIO of Northern Trust Wealth Management.

“In any given year, you expect to have 5% pullbacks almost routinely,” Nixon said. “It’s just that we haven’t had one in a while so this feels kind of extreme.”

Investors know that markets can fall significantly, as happened during the financial crisis in 2008 or during the early days of pandemic, according to Scott Zelniker, private wealth advisor at UBS Wealth Management. “More often than not, the market was up significantly 12 months later,” Zelniker told Barron’s .

One topic of conversation among Zelniker’s clients, however, is whether to buy the cars they are leasing when their agreements expire instead of re-leasing them as usual, considering the potential for tariffs to lead to higher-priced automobiles, he said. “They already have a contract with a price.” Why buy, or lease, a new car?

Former New Hampshire Gov. Chris Sununu delivered a warning to Treasury Secretary Scott Bessent during a recent visit to Washington: Already-high airfares will surge if the war in Iran doesn’t end soon.

Sununu, a Republican who represents some of the biggest airlines as president of the industry group Airlines for America, has for weeks sounded the alarm to Trump administration officials about the economic fallout from high jet fuel prices. The war, Sununu has argued, must come to a close soon, or things will get worse.

Administration officials have gotten the message.

Privately, President Trump’s advisers are increasingly worried that Republicans will pay a political price for the rising fuel costs, according to people familiar with the matter. Many of those advisers are eager to end the war, hoping prices will begin to moderate before November’s midterm elections.

The fallout from the U.S.-Israeli attack in late February has slowed traffic through the Strait of Hormuz, a vital shipping lane, triggering a sharp increase in oil, gasoline and jet-fuel prices.

That means consumers are grappling with high costs ahead of the summer travel season, as they consider vacation plans.

Sixty-three per cent of Americans said they put a great deal or a good amount of blame on Trump for the increase in gas prices, according to a new poll conducted by NPR, PBS and Marist.

More than 8 in 10 Americans said struggles at the gas pump are putting strain on their finances.

Jet-fuel prices roughly doubled in a matter of weeks after the war began, and they have remained high. Airlines have said that will add billions of dollars of additional expenses this year, squeezing profit margins.

U.S. airlines spent more than $5 billion on fuel in March—up 30% from a year earlier, according to government data.

Carriers have been raising ticket prices, hoping to pass the cost along to consumers, and they are culling flights that will no longer make money at higher price levels.

In March, the price of a U.S. domestic round-trip economy ticket rose 21% from a year earlier to $570, according to Airlines Reporting Corp., which tracks travel-agency sales.

So far, airlines have said the higher fares haven’t deterred bookings and they are hoping to recoup more of the fuel-cost increases as the year goes on.

Earlier this week, Trump said the current price of oil is “a very small price to pay for getting rid of a nuclear weapon from people that are really mentally deranged.”

Secretary of State Marco Rubio told reporters that if Iran got a nuclear weapon, the country would have more leverage to keep the strait closed and “make our gas prices like $9 a gallon or $8 a gallon.”

Trump has taken steps in recent days to bring the war to an end. Late Tuesday, the president paused a plan to help guide trapped commercial ships out of the Strait of Hormuz, expressing optimism that a deal could be reached with Iran to end the conflict.

Crude oil prices fell below $100 a barrel on Wednesday, after reports that Iran and the U.S. are working with mediators on a one-page framework to restart negotiations aimed at ending the conflict and opening the strait.

Sununu said Trump administration officials are conscious of the economic fallout from the war: “They get it…and I think that’s why they’re trying to get through the war as fast as they can.”

But he cautioned that it could take months for prices to return to prewar levels.

“Ticket prices won’t go down immediately” after the strait is fully reopened, Sununu said. “You’re looking at elevated ticket prices through the summer and fall because it takes a while for the prices to go down.”

Since the initial U.S.-Israeli attack in late February, Sununu has met in Washington with National Economic Council Director Kevin Hassett, representatives from the Transportation Department and senior White House officials.

A White House official confirmed that Hassett and Sununu have discussed the effect of increased fuel prices on the airline industry. The official said the conversation touched on how the industry can mitigate the impact of high jet fuel prices on consumers.

“The president and his entire energy team anticipated these short-term disruptions to the global energy markets from Operation Epic Fury and had a plan prepared to mitigate these disruptions,” White House spokeswoman Taylor Rogers said, pointing to the administration’s decision to waive a century-old shipping law in a bid to lower the cost of moving oil.

Rogers said the administration is working with industry representatives to “address their concerns, explore potential actions, and inform the president’s policy decisions.”

A Treasury Department spokesman pointed to Bessent’s recent comments on Fox News that the U.S. economy remains strong despite price increases. The spokesman said Treasury officials have met with airline executives, who have reaffirmed strong ticket bookings.

“We’re cognizant that this short-term move up in prices is affecting the American people, but I am also confident, on the other side of this, prices will come down very quickly,” Bessent told Fox News on Monday.

The war has already contributed to one casualty in the industry: Spirit Airlines. Company representatives have said they were forced to close the airline because the sustained surge in jet-fuel prices derailed the company’s plan to emerge from chapter 11 bankruptcy.

The Trump administration and Spirit failed to come to an agreement for the company to receive a financial lifeline of as much as $500 million from the federal government.

Transportation Secretary Sean Duffy has argued that the Iran war wasn’t the cause of Spirit’s demise, pointing to the company’s past financial struggles, as well as the Biden administration’s decision to challenge a merger with JetBlue.

Other budget airlines have also turned to the federal government for help since the U.S.-Israeli attack. A group of budget airlines last month sought $2.5 billion in financial assistance to offset higher fuel costs, and they separately wrote to lawmakers asking for relief from certain ticket taxes.

Even Rich People Are Starting to Get Nervous About Trump’s Economy

Administration officials have spoken to the airline industry, which has voiced concerns about the rising costs.