Four components - tax burden, initial unemployment claims, real wages and real home prices - comprise the index which fell to 1.78 percent from last month's index of 2.55 percent. "With the modest 2007 holiday selling season, declining housing market and reduced consumer spending, U.S. retailers are under significant pressure to perform," says Stacy Janiak, Deloitte's retail leader. "Retailers will likely be focusing on maintaining cash flow by keeping inventories lean and payrolls low, and rationalizing other costs, particularly selling, general, and administrative (SG&A) expenses."
Highlights of the index:
- Tax Burden: The tax burden remained unchanged in December.
- Initial Unemployment Claims: The year-on-year growth rate in unemployment claims increased in December 2007, as compared to December 2006. The risk of higher unemployment is increasing with a sharp fall in GDP growth in the fourth quarter to 0.6 percent even though the unemployment rate, which rose only marginally to 5 percent, would indicate otherwise.
- Real Wages: Growth in real wages fell below zero in December even when prices increased at a slower pace compared to the previous month. Inflation increased 0.3 percent in December with energy prices accounting for about one third of the overall increase in prices. This could be one of the first signs of a softening labor market.
- Real Home Prices: Housing prices fell by 9 percent on a year-on-year basis in December 2007, as compared to December 2006. This month saw a substantial increase in mortgage loan applications. However, with a tight credit market, it is not clear yet if a revival in housing demand is underway. There was no substantial reduction in inventory of new houses which would take 9.6 months to unwind at the current sales pace.
