Deloitte Consumer Spending Index Continues Downward

Rising unemployment claims and inflation weaken the outlook on consumer spending

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Jun 14, 2011, 09:43 ET

NEW YORK, June 14, 2011 /PRNewswire/ -- The Deloitte Consumer Spending Index (the Index) continued to decline in May, weighed down by a sharp rise in unemployment claims last month. The Index tracks consumer cash flow as an indicator of future consumer spending.

"The labor market indicators are the primary cause of weakness in the Index, however the economy is up against other temporary headwinds that suggest weak growth may persist for the near term," said Carl Steidtmann, Deloitte's chief economist and author of the monthly Index. "Rising food and energy prices continue to hurt real wages, which combined with Americans' insecurities about the job market, compound the pressure on consumer spending."

The Index, which is comprised of four components — tax burden, initial unemployment claims, real wages, and real home prices — fell to 2.66 percent, from an upwardly revised gain of 3.29 percent a month ago.

"Prices for everyday necessities continue to climb, leaving consumers with fewer discretionary dollars to spend," said Alison Paul, vice chairman and U.S. retail & distribution sector leader, Deloitte LLP. "As retailers are also challenged by rising prices, they should consider using some of the latest tools and analytics capabilities to more surgically improve margins while keeping prices low on traffic builders. Leveraging their rich transaction data in combination with new advanced analytics techniques can help to maximize sales without alienating loyal consumers. Insights into spending patterns, product preferences and price sensitivities can help retailers apply strategies to respond to a more selective consumer and keep costs in check."

Highlights of the Index include:

Tax Burden: The tax burden is up slightly, from 9.1 to 10.15 percent from a year ago. A rising tax burden is typically a sign of an improving economy.

Initial Unemployment Claims: After breaking down below the 400,000 barrier from October to March, claims have increased sharply to 432,500. A decline in the labor market puts the current recovery at risk.

Real Wages: In the most recent month, real wage growth contracted by 0.8 percent from a year ago and is being held down by rising energy and food prices.

Real Home Prices: Real home prices continue to decline, albeit at a slightly slower pace. Prices over the past three months have shown some stability but are still down 3.3 percent from a year ago. New home inventories are almost back to normal levels despite record low level of transactions.

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SOURCE Deloitte