The Deloitte Research Leading Index of Consumer Spending rose slightly in July due mostly to a slower pace of decline in home prices and the residual effects of the recent distribution of tax rebates. The Index attempts to track consumer cash flow as an indicator of future consumer spending.


"House prices declined more slowly this month, but they are still down from a year ago and they continue to be the biggest drag on the Index," said Carl Steidtmann, chief economist with Deloitte Research, a subsidiary of Deloitte Services LP, and author of the monthly Index. "In addition, unemployment claims rose again, and real wages continued to be depressed by rising energy and food prices. There were also a few positive items this month - including residual effects of the tax rebates - but we expect that these will be mostly short-term."

The Index, comprising four components - tax burden, initial unemployment claims, real wages and real home prices - rose in July 2008 to 1.58 percent, from a revised gain of 1.44 percent a month ago.

"Consumers in nearly every income group are being more cost-conscious," said Stacy Janiak, Deloitte's U.S. Retail leader. "June's retail sales, not including gasoline, were down from last year. Further, in Deloitte's recent Back-to-School Survey, a hefty 90 percent of consumers said they were changing the way they shop or cutting back due to economic concerns. With 'value' being the operative word right now, retailers may benefit by emphasizing value offerings and focusing on well-timed promotions."

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. The impact of tax rebates is fading and will likely be gone by fall.

- Initial Unemployment Claims: The year on year growth rate in unemployment claims is steadily rising. Claims are up more than 20 percent from a year ago and rising. The labor market is steadily deteriorating, dragging down the Index.

- Real Wages: Real wage growth was sharply negative as a weak labor market coupled with higher prices for food and energy to undercut real wages.

- Real Home Prices: House prices fell again this month but at a slower 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 keep downward pressure on prices.