The Index, comprising four components - tax burden, initial unemployment claims, real wages and real home prices - fell to 1.46 percent, from a revised gain of 1.64 percent a month ago.
"It appears that many consumers have chosen not to spend their federal income tax rebate checks, and rather have put the money into savings or used it to pay off debt," said Stacy Janiak, Deloitte's U.S. Retail leader. "As a result, retailers still have an opportunity to encourage consumers to use this increased liquidity in July and August as we head into the back-to-school shopping season. Retailers who have the right merchandise mix and carefully manage price points and promotions may be best positioned to capitalize on this opportunity."
Highlights of the index include:
- Tax Burden: Despite weak growth, the tax burden fell sharply this month as the U.S. Treasury sent out the first round of rebate checks. The sharp rise in the savings rate to 5 percent shows that the bulk of the rebate money was not spent, but rather was put into savings or used to pay off debt. This may provide consumers with more liquidity in the fall and could stimulate back-to-school spending.
- Initial Unemployment Claims: Unemployment claims continue to rise and are up more than 20 percent from a year ago. With more layoffs expected, claims could trend higher.
- Real Wages: Real wage growth is being hit by a weak labor market and sharply higher prices for food and energy. Until energy prices break, real wages are expected to be a drag on future spending.
- Real Home Prices: House prices fell by 10 percent in May compared with May of last year. Home mortgage refinancing has all but disappeared, reducing household cash flow. Inventories of unsold homes, while down slightly, are still quite high. A contraction in mortgage credit is limiting home buying. Until home prices stabilize, housing will remain a drag on consumer spending.
