Whiskey Prices Are Dropping - That's Bad News for Americans

The luxury whisky market is seeing its steepest decline in auction prices in over a decade, excluding the pandemic period, indicating some pressure on the economy.

Rare whiskies have traditionally withstood market volatility. However, according to Noble & Co.'s Whisky Intelligence Report, which encompasses around 8,500 transactions of fine and rare single malts, there has been a 7 percent drop in transaction value, an indicator that consumers are tightening their belts and cutting back on luxuries.

According to Noble, that decline, against a backdrop of fluctuating consumer confidence, higher interest rates, increased cost of living and slowing growth is "proving to be a set of headwinds too much for the market" and are "breaks on the outlook."

Noble did not immediately respond to Newsweek's email request for comment.

How Is Whisky an Indicator? The Bourbon Barometer

Similar to the wine consumption indicator that CNBC surfaced in 2014, the term Bourbon Barometer applies as it suggests sales of premium spirits—particularly bourbon, an American whiskey—can act as an informal indicator of consumer confidence and financial health.

The Bourbon Barometer, which SoFi reported on earlier this year, assumes that when the economy is robust and consumer confidence is high, sales of luxury items like premium bourbon tend to increase. Conversely, in times of economic uncertainty or downturn, sales often decline as consumers tighten their belts. The decline in whisky volume traded began in March of last year, just after Russia's invasion of Ukraine, according to Whiskystats.

The barometer is based on the understanding that luxury spirits are often purchased for both intrinsic value and as a symbol of status and financial wellbeing, according to Noble. As such, changes in purchasing patterns can reflect broader economic trends and shifts in consumer sentiment.

The 7 percent decline in transaction value of rare whiskies, which followed a 19 percent increase in the previous year is a reversal of fortunes, and marks the first major drop since 2012, barring the 51 percent fall during the pandemic lockdown in 2020, Noble said.

"It's no surprise we're seeing a pivot away from high-end luxury purchases," University of Illinois assistant economics professor So Yoon Ahn told Newsweek after reading the Noble & Co. report. Ahn said consumers are still dealing with the risks of inflation and are still adjusting to a post-COVID economy.

Recession Expectations Now Low

The assistant economics professor said that with the risk of recession now on the lower end, she expects a rebound in rare whisky values and transactions as "these markets tend to be cyclical."

Still, the decline seen in high-end whisky prices is a part of a broader trend affecting the luxury goods market. LVMH, the conglomerate known for its high-end brands, last month reported a 7 percent organic revenue decline in its Wines & Spirits business group for the first nine months of 2023. The company said it saw weak demand in the U.S. driven by the current economic environment.

The drop in luxury whisky sales at LVMH comes in line with the consumer confidence report issued Tuesday, which, although showing a slight increase, still indicate a cautious approach to spending.

Noble said while there is growth in volume, the growth is primarily occurring in the lower end of the market (bottles selling for less than $1,098.72), possibly due to their accessibility and the presence of traders looking to make a quick profit.

Still, prices for bottles in the high-value category that do sell remain high, Noble & Co. found, driven by scarcity and collector interest, which was evident in the ultra-premium segment (bottles over $109,848.50), where a decrease in the number of bottles sold corresponded with higher prices for those that did transact.