NEW YORK, Nov. 17, 2010 /PRNewswire/ -- The Deloitte Consumer Spending Index (the Index) declined in October, primarily due to softness in the housing market.  The Index attempts to track consumer cash flow as an indicator of future consumer spending.

"Sustained weakness in housing prices and a tax rate that is creeping higher more than overcame significant improvement in initial jobless claims in October," said Carl Steidtmann, Deloitte's chief economist and author of the monthly Index.  "Although consumers have regained some of their purchasing power, many are holding back in anticipation of more positive movement in areas like housing and employment.  However, the effects of new government stimulus efforts could have a positive influence on consumer sentiment in the coming months."

The Index, comprising four components — tax burden, initial unemployment claims, real wages and real home prices — fell to 4.63 percent, from an upwardly revised gain of 4.84 percent a month ago.  

"Despite the Index's recent weakness, there are signs that consumers are starting to shake off  their long-term austerity in time for the holiday season," said Alison Paul, vice chairman and retail sector leader, Deloitte LLP.  "Recognizing there is still fierce competition for consumers' wallets this season, retailers should be ready to capture the consumer's interest with renewed focus on their exclusive items, personalized service, and targeted promotions."

Tax Burden: With the tax benefits of the 2009 stimulus ebbing, the tax burden remains low but is pushing slowly higher and is now above year-ago levels.  If the former President George W. Bush's 2001 tax cuts expire, the tax burden could push higher, although rising state and local taxes could also cause add to the consumer's tax burden.

Initial Unemployment Claims: Claims improved significantly in the most recent month and seem poised to break out of the narrow range around 450,000 they have been stuck in for the past year.

Real Wages: Real wage growth continues to make a small contribution to household cash flow due in large part to very weak inflation.  For workers who are employed, earnings go a lot farther than they once did.

Real Home Prices: With more supply coming on the market due to foreclosures, pricing remains weak. More declines in home prices are expected near term.

For more information about Deloitte's retail sector, please visit www.deloitte.com/us/retail.  

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SOURCE Deloitte