Deloitte Consumer Spending Index Continues Downward

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Aug 17, 2010, 09:41 ET

NEW YORK, Aug. 17 /PRNewswire/ -- The Deloitte Consumer Spending Index (Index) experienced its third straight month of decline in July, due in large part to weakness in the housing market. The Index attempts to track consumer cash flow as an indicator of future consumer spending.

"Real home prices had briefly picked up due to demand fueled by tax credits for home buyers, but prices have resumed their downward trend following the expiration of those credits and the housing market is now the biggest drag on the Index," said Carl Steidtmann, chief economist with Deloitte Research, a part of Deloitte Services LP, and author of the monthly Index. Deloitte Research identifies, analyzes and explains the major issues driving today's business dynamics and shaping tomorrow's global marketplace.

"Looking at other components of the Index in July, we see that tax rates, which had declined sharply during the recession, have basically held steady since the start of this year. Real earnings ticked up slightly, following five consecutive declines," said Steidtmann.

The Index, comprising four components — tax burden, initial unemployment claims, real wages and real home prices — fell to 4.45 percent, from an upwardly revised gain of 4.63 percent a month ago.

"American households continue to be cautious about spending while economic growth continues to be uneven," said Alison Paul, vice chairman and Deloitte's retail leader in the United States. "At the same time, consumers economized over the past two years and likely have pent up demand for goods they have foregone. Retailers should consider strategies to stay nimble amid shifts in consumer behavior in the months ahead. Customer data and business analytics may be particularly valuable for retailers to hone pricing, merchandise and promotions that attract their target consumers."

Highlights of the Index include:

Initial Unemployment Claims: Initial unemployment claims fell for the seventh consecutive month, although the year-over-year declines are lessening. Unemployment claims peaked in the spring of 2009. While claims are still elevated, they are down nearly a third from their peak.

Real Wages: Real wages moved back into positive territory following five consecutive declines. The upturn, however, was slight. The recent weakness in employment and hours worked are unfavorable developments for U.S. households.

Real Home Prices: Real home prices have fallen for two consecutive months. Home buying activity has declined in recent months due to the ending of the tax credit. Prices are likely to remain depressed for a while longer until demand strengthens again.

Tax Burden: The consumer's tax burden declined sharply through most of the recession. In 2010, however, the rate has held steady, although it continues to be down from year-ago levels.

For more information about Deloitte's retail sector, please visit www.deloitte.com/us/retail.

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