What's going on with the audio market?

Here is my 2 cents from a manufacturer.

1. Sales are good.
2. Dealers have to retool for many reasons that I will list separately. Dealers that don't retool, are closing down or having a hard time selling.
3. There seems to be a seasonality to sales, along with economic swings with are counterintuitive.

Dealers need retooling.
1. The older buyers are downsizing.
2. The new products are better, faster and cheaper.
3. There is a lot going on in the Audio industry that even manfacturers are finding hard to keep up with.
4. There are many new entrants from around the world. These products are excellent.
5. Asia likes large, bulky bling products. Europe likes sleek designs. US likes both. 
6. The trophy buyers are shrinking fast. Dealers selling trophy systems for the highest profit, other then NYC, are being challenged.
7. Newer, younger buyers are looking for value, performance and use. For example I am chided by the older users for the LED VU meters and liked by the younger users for the LED VU meters.
8. The internet!
9. Headphone users are the next generation of Audiophiles. This is a huge market of Audiophiles growing up.

The above is not all of equal weight and seen only through my lens. So I am sure there are other views also. The economy is good, so there is a lot of confidence in the buyers and a lot of purchases that stretch budgets. That is good news. I suspect that there is also pent up demand that is a little confused with so many products now coming out, and seem to be changing fast. Computer, Vinyl, Tape.

Also note that when the economy is good, there is more of other activities, hence less time for Audio. I see business owners spending more time expanding and less time with Audio. Employees working harder with more cash but less time for Audio.

Interesting perspective merrillaudio, that is a different view from where I see it.
I have to question your point number 2, as I see "better" as subjective, faster I can agree with, though this isn't necessarily always a good thing, but cheaper? I don't see this.

 I have seen companies go in two directions, cheaper, and more expensive. It's the middle ground that seems to be disappearing.
Companies like Wilson, ARC, VAC, Vitus, Nordost, Tara Labs, etc., are making gear more and more expensive every year. So I have a hard time seeing that new products are cheaper. Maybe cheaper to manufacture, but the list price still goes up.

I've always scratched my head when I read that the advertisers target the younger crowd.  I'm 62 years old and have a LOT more discretionary income than about 99% of those "gen whatevertheyarecallednowers".

Back in the late 70's/early 80's I worked at some high-end audio shops and the ebbs and flows in the sales cycles defied reason.  Yes, we were prepared for a slowdown in purchases during the summer vacation season, but I'll never forget watching NBC news, unemployment ticked down, interest rates ticked down but for some reason people stopped buying audio equipment for the next 2-3 months.

High-end audio is such a niche market, I don't think the larger trends in the economy effect the sales of this sort of equipment so much.

A good example of "cheaper". Is the Bel Canto C5i integrated I picked up recently for my second system.    It has everything in one small shoebox sized package and the sound would satisfy most anyone I suspect with most any speaker used.   60 watts power is its only limitation.   It goes loud but not to real life levels some might want with less efficient speakers but loud and clear enough for most.   

It's all the hifi 99% of folks out there would ever need or want.  Nice headphone amp as well.  

I think there's a recent shift in emphasis on what high-end audio manufacturers are making, which may leave some of us old troglodytes (64 in my case) behind. Flavor-of-the-month seems to be music streaming as opposed to physical media, the latter being what most of us grew up with. My theory is that younger buyers, fewer of whom are audiophiles, are more focused on convenience and portability than actual audio quality. (Some of the blame here might rest with the advent of the MP3 format, the first time in the history of recorded music that the public demanded a LOWER quality of sound). While there remains a dizzying variety of traditional equipment still in production, I agree with many previous posters that prices have butted their heads against the ceiling of affordability, and the market is at or near saturation. In my area (Northern California) there are still a fair number of high-end audio stores and they show no signs of distress yet, but most concentrate on home theater which is where the money is at the moment.