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Deloitte Consumer Spending Index Continues Upward in February 2009
added: 2009-03-12

The Deloitte Consumer Spending Index rose in February, once again driven by strong growth in real wages and a decline in energy prices. The Index attempts to track consumer cash flow as an indicator of future consumer spending.

"Falling oil prices and reduced tax burdens are giving consumers the wherewithal to spend. What they are lacking is the will to do so," said Carl Steidtmann, chief economist with Deloitte Research, a subsidiary of Deloitte Services LP, and author of the monthly Index. "At the same time, real inflation adjusted home prices are still down nearly 9 percent from a year ago and are a drag on the Index. The rebound in the Index coupled with anticipated tax cuts point to a better selling environment for retailers this spring. However, a full recovery in consumer spending will likely have to wait for stabilization of the housing market."

The Index, comprising four components - tax burden, initial unemployment claims, real wages and real home prices - increased to 1.53 percent, from an upwardly revised gain of 1.27 percent a month ago.

"Despite increasing purchasing power, consumers are still generally holding back. They do, however, seem to be breaking out of their winter doldrums by cautiously spending on items like spring clothing and certain electronics," said Stacy Janiak, vice chairman and U.S. Retail leader, Deloitte LLP. "Understanding that consumers are spending selectively, retailers should consider sharpening the connections with their customers - not just to drive traffic today but to build deep customer loyalty for the future."

Highlights of the Index include:

Tax Burden: The tax burden continues to fall with the weakening of the economy. Tax reduction that goes into effect in April will add to a further reduction in tax burden going forward.

Initial Unemployment Claims: Claims rose again in the most recent month and are up 72 percent from a year ago.

Real Wages: Real wage growth continues to post strong growth. Real wages are up 4.6 percent from a year ago and on an annualized basis are up 13.5 percent over the last six months as energy prices have given a big boost to consumer purchasing power.

Real Home Prices: Home prices continue to fall. Renewed efforts to forestall foreclosures coupled with a tax credit for home buyers may bring some stability to this market. The decline in home prices has made home buying much more affordable. What is lacking is mortgage financing.


Source: PR Newswire

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