Deloitte Consumer Spending Index Moves Upward in February

Recent gains may soon be undermined by inflationary pressures

Mar 14, 2011, 08:00 ET from Deloitte

NEW YORK, March 14, 2011 /PRNewswire/ -- The Deloitte Consumer Spending Index (the Index) rose in February, driven primarily by the slight improvements in real home prices and initial jobless claims.  The Index attempts to track consumer cash flow as an indicator of future consumer spending.

"Despite the small gains in the Index, the recent sharp rise in energy prices could weaken consumer purchasing power in the months ahead," said Carl Steidtmann, Deloitte's chief economist and author of the monthly Index. "The stabilization in real home prices may also be temporary given the persistent strain on the housing market.  On the upside, should the slow but steady improvement in employment continue, it may help offset price increases."  

The Index, which comprises four components — tax burden, initial unemployment claims, real wages, and real home prices — rose to 4.02 percent, from an upwardly revised gain of 3.92 percent a month ago.  

"Unsurprisingly, some retailers are concerned about rising costs and whether they can avoid passing them on to consumers," said Alison Paul, vice chairman and retail sector leader, Deloitte LLP.  "Retailers should consider costs across the entire supply chain, from strategic sourcing at the back end to the technologies and analysis they use for monitoring inventories and product movement at the front end."

Highlights of the Index include:

Tax Burden: With the tax benefits of the 2009 stimulus ebbing, the tax burden is pushing slowly higher and is now at its highest level in two years. As the economy improves, more households are pushed into higher tax brackets, raising the government's take.

Initial Unemployment Claims: Claims continued to improve, albeit at a slower pace.  The four- week average for claims is right at 400,000.  Moving below this level would be a sign of significant improvement in the labor market.  

Real Wages: Wage growth, adjusted for inflation, ticked up in February.  Future gains are at risk from rising energy prices.  

Real Home Prices: Inflation-adjusted prices for new homes were up slightly from a year ago.  Prices for existing homes continue to be well below the replacement cost of homes, keeping a lid on home construction and new home prices.

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SOURCE Deloitte