The Deloitte Research Leading Index of Consumer Spending fell in August, due primarily to a continued soft housing market and a worsening labor market. The Index attempts to track consumer cash flow as an indicator of future consumer spending.


"The economy continues to be weighed down by a labor market that is getting worse and the continued softness in the housing market," said Carl Steidtmann, chief economist with Deloitte Research, a subsidiary of Deloitte Services LP, and author of the monthly Index. "However, as lower energy prices begin to positively impact consumer purchasing power and a stronger dollar works its way through the economy to help retailers' cost of goods sold, we may begin to see the economy improve."

The Index, comprising four components - tax burden, initial unemployment claims, real wages and real home prices - fell in August 2008 to 0.88 percent, from a revised gain of 1.60 percent a month ago.

"Retailers are preparing for a challenging holiday season," said Stacy Janiak, Deloitte's U.S. Retail leader. "They have focused on keeping inventories low, tightly managing labor costs, and holding other costs in check. In fact, the inventory-to-sales ratio for non-auto retailers is down to 1.24 months, which is a record low. Over the next few months, retailers will need to continue to focus on these metrics in order to maximize their profit margins, while drawing in consumers by emphasizing value offerings."

Highlights of the Index include:

- Tax Burden: Tax rebates greatly reduced the tax burden over the summer, giving the consumer some much needed cash flow. However, the impact of tax rebates has faded and will likely have little impact on spending going forward.

- Initial Unemployment Claims: Claims have been steadily rising and are now up more than 28 percent from a year ago. The labor market is steadily deteriorating, dragging down the Index.

- Real Hourly Wages: Real hourly wage growth was sharply negative as a weak labor market combined with rising food and energy prices undercut real wages. Real hourly wages are down 1.3 percent from a year ago.

- Real Home Prices: House prices fell again this month but at a faster pace. Home mortgage refinancing has all but disappeared, reducing household cash flow. While inventories of unsold homes have improved slightly, rising foreclosures and a tighter mortgage market will likely keep downward pressure on prices. Real home prices were down 9.3 percent from a year ago.