The Deloitte Consumer Spending Index fell in March as the recent growth in real wages stalled due to rising energy prices. The Index attempts to track consumer cash flow as an indicator of future consumer spending.


"Falling home prices and rising unemployment claims continue to be a drag on the index. Affordability is at an all time high in the housing market, but home price deflation gives potential buyers an incentive to wait while also reducing homeowners' ability to tap home equity through refinancing," said Carl Steidtmann, chief economist with Deloitte Research, a subsidiary of Deloitte Services LP, and author of the monthly Index. "On the plus side, the stimulus package is expected to boost consumer purchasing power, as should anticipated tax incentives this spring. The net result is that, while consumers are still in a holding pattern, the pace of decline in real consumer spending appears to have stabilized."

The Index, comprising four components - tax burden, initial unemployment claims, real wages and real home prices - fell to 1.19 percent from an upwardly revised gain of 1.57 percent a month ago.

"With the economy's mixed signals keeping consumers in a 'wait and see' mode, expectations of value and discounts continue to rise," said Stacy Janiak, vice chairman and U.S. Retail leader, Deloitte LLP. "Retailers can minimize the consumer's growing expectations of discounts by evaluating their price management strategies and processes. A focus on inventory management, pricing execution, and product differentiation in addition to incentives and promotions can create greater demand for a retailer's merchandise and services. In this way, retailers will be better positioned to take advantage of greater consumer spending once a recovery is under way."

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 75 percent from a year ago.

Real Wages: Real wage growth which has shown strong growth in recent months stalled this month as energy prices rose. Still, real wages are up 4.1 percent from a year ago and on an annualized basis are up 9.9 percent over the last seven 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.