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As the rich cut costs, others take a hit

Blue-collar workers see loss of income

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Associated Press / January 29, 2008

NEW YORK - It's hard to feel sorry for well-heeled shoppers whose idea of tough economic times is passing on $1,000 Burberry raincoats or that $300 limo ride while the working poor skimp on vegetables and take the bus.

But economists say that recent signs of cutting back by the affluent could hurt the economy and deliver even more pain to lower-income workers, who are dependent on their business and fat tips.

Nathan Warren, a limo driver, knows this first-hand: He has seen his monthly wages drop by 40 percent to about $1,800 since late last year. His work week at Newport Beach, Calif.-based Classy Ride Limousine Service has been reduced to three days from five amid slow business.

"I have to struggle to get by. I am pinching pennies," said Warren, 30, a Costa Mesa, Calif. resident. "I am eating more cereal and am not buying clothing."

Cutbacks by the wealthy have a ripple effect across all consumer spending, said Michael P. Niemira, chief economist at the International Council of Shopping Centers. That's because US households in the top 20 percent by income - those making at least $150,000 a year - account for 39 percent of overall consumer spending, which makes up two-thirds of economic activity.

American Express Co., whose customers are generally affluent, said it expects slower spending and more missed payments on credit cards throughout 2008.

The economy needs affluent shoppers to spend with enthusiasm.

According to the government's latest survey of consumer expenditures, the top 20 percent of households spend about $94,000 annually, almost five times the bottom 20 percent.

In Chicago, Montopoli Custom Clothiers, a tailor to consumers willing to spend $3,000 to $30,000 for a custom-made suit, has also seen business suffer. Sales dropped 10 percent in October and November from the year-ago period, according to president Jeff Landis.

He's taken more aggressive measures like increasing calls to clients to get them in the store, but hasn't laid off anyone. "I'm not at the point of panic," he said.

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