Deloitte Consumer Spending Index Declines Again in June

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Jul 16, 2010, 09:00 ET

NEW YORK, July 16 /PRNewswire/ -- The Deloitte Consumer Spending Index (Index) declined in June for the second consecutive month, once again due to weakness in real wages and the housing market. The Index attempts to track consumer cash flow as an indicator of future consumer spending.

"Real hourly earnings, after experiencing growth in 2009, have deteriorated in 2010 and continue to 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.

"The other negative contributor appears in real home prices, which resumed their downward trend after a short, two-month upward climb. However, initial unemployment claims remain a bright spot in the Index, with the employment picture slowly improving and initial claims showing a consistent six-month decline. While the tax rate remains at historically low levels, the tax burden may start to edge higher in coming months as new tax legislation goes into effect."

The Index, comprising four components -- tax burden, initial unemployment claims, real wages and real home prices -- dropped back to 4.5 percent, from an upwardly revised gain of 4.93 percent a month ago.

"As retailers head into the back-to-school season, they should concentrate not only on attracting customers but also converting them into buyers," said Alison Paul, vice chairman and Deloitte's retail leader in the United States. "Consumers may monitor prices and resist impulse buys should they continue to act cautiously. Retailers that can entice shoppers by pulling the right customer conversion levers and provide a helpful and exciting cross-channel shopping experience may be better positioned to lead the pack this back-to-school season."

Highlights of the Index include:

Initial Unemployment Claims: As the employment cycle continues to improve, unemployment claims continue to fall. Although employment gains recently have softened a bit, claims are expected to continue to move downward, though perhaps at a somewhat slower pace.

Real Wages: Real hourly earnings slipped for the fifth consecutive month. With increasing signs that economic growth is softening, real wages could stagnate for a while longer.

Real Home Prices: Home sales quickly fell back with the ending of the homebuyer tax credit. As a result, home prices have also deteriorated and will likely remain soft for several more months. Thus, real home prices may remain a drag on the Index for a while longer.

Tax Burden: The consumer's tax burden declined sharply through most of the recession. In 2010, however, the rate has basically held steady. It remains at a historically low level.

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

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