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US: Stabilizing Housing Market Improves Consumer Spending Outlook
added: 2007-05-11

The Deloitte Research Leading Index of Consumer Spending was largely unchanged this month, due to a stabilizing housing market and strength in the labor market, somewhat offset by sharply higher rates of taxation.


"A housing market that appears to be stabilizing, coupled with continued growth in the labor market, are giving us a better outlook," says Carl Steidtmann, chief economist with Deloitte Services LP's Deloitte Research and author of the monthly index. "On the flip-side, strong wages are pushing more people into higher tax brackets due to the Alternative Minimum Tax, a strong stock market means higher capital gains taxes, and some states are increasing some tax rates, all of which is increasing the tax burden. Looking ahead, the outlook is mixed: many areas are holding up well and benefiting from the decline in housing, while others are suffering."

The index, comprising four components - tax burden, initial unemployment claims, real wages and real home prices - was largely unchanged at 3.20%, from an upwardly revised gain of 3.23% a month ago.

"Achieving profitable growth has become more difficult for many retailers as 2007 has continued to progress," added Pat Conroy, a vice chairman of Deloitte & Touche USA LLP and national managing principal of its Consumer Business industry practice. "Wide swings in the weather have made it harder for merchants to effectively manage inventories, while rising gas prices are making some consumers uncertain about spending. In this environment, retailers should be focusing on incentive programs in an effort to stimulate demand, their brand experience with potential customers, and identifying products, services, and experiences that capitalize on existing customer loyalty."

Highlights of the index, which tracks consumer cash flow as an indicator of future consumer spending, include:

- Tax Burden: The pace of growth in household tax burden has accelerated in recent months. Personal tax payments were up 17.2% in the first quarter from a year ago. Despite large increases in spending, many states are finding they have very large budget surpluses and, at the Federal level, the budget deficit continues to shrink due to soaring tax revenues. As incomes rise and more households get pushed into paying the Alternative Minimum Tax, the average rate of taxation on households rises.

- Initial Unemployment Claims: After rising early in the year, claims have come down slightly in recent weeks but are still up slightly from a year ago. The improvement in claims in recent weeks points to a labor market that continues to generate new jobs, the foundation of consumer spending.

- Real Wages: After rebounding sharply last year, real wage growth is still strong relative to recent years, but has slowed in the face of higher energy prices. The sharp run up in gasoline prices is a major headwind to future growth in the Deloitte Index.

- Real Home Prices: New home prices have stabilized in recent months even as the housing market has been roiled by problems in sub-prime lending. Real home prices were up slightly from a year ago, reversing recent declines, giving a small boost to the index.


Source: PR Newswire

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