The Index, comprising four components - tax burden, initial unemployment claims, real wages and real home prices - increased to 1.62 percent, from a revised gain of 1.26 percent a month ago.
"Federal income tax rebate checks helped consumer spending in May, and retailers that offer incentives to spend those checks could benefit this summer," said Stacy Janiak, the U.S. Retail sector leader at Deloitte. "Consumers are being frugal and holding back discretionary spending – they continue to focus on the basics, which is helping discounters, wholesale clubs and drug stores. Retailers will need to continue to aggressively woo consumers and find creative ways to present their merchandise in order to get their share of consumer spending."
Highlights of the index include:
- Tax Burden: The average income tax rate continues to fall. This is the only factor contributing positively to the Index on a sustained basis.
- Initial Unemployment Claims: Labor demand weakened significantly with job losses totaling 260,000 between January and April in 2008. The unemployment situation is a headwind for consumer spending with the federal open market committee forecasting a significant increase in the unemployment rate in 2008, currently at 5.5 percent. Job losses were widespread in construction, manufacturing, and professional and business services and retail trade sectors.
- Real Wages: Real wages declined in April, but at a rate lower than the previous month. The rate at which consumer prices are increasing has slowed in the first four months of 2008 compared to 2007 as a result of slower increases in energy prices and prices of all items excluding food and energy. Nonetheless, the outlook for real wages is negative owing to sustained increases in energy and food prices.
- Real Home Prices: House prices fell nine percent in April, and the pace of home price declines is slowing. However, a recovery is not in sight with enough housing inventories built up to last ten months at the current sales pace.
