Deloitte Consumer Spending Index Turns Upward on Housing Market Gains

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Oct 15, 2012, 08:00 ET

NEW YORK, Oct. 15, 2012 /PRNewswire/ -- The Deloitte Consumer Spending Index (Index) rose in September, primarily due to a nearly 11 percent increase in home prices, which offset weakness in other areas of the Index. The Index tracks consumer cash flow as an indicator of future consumer spending[i].

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"The sizable increase in home prices may overstate the strength of the real estate market, though on a positive note, the declines may be over and the market stabilizing," said Carl Steidtmann, Deloitte's chief economist and author of the monthly Index. "The increase may also provide a much-needed boost to consumer confidence as other hurdles lie ahead. Consumer spending growth has slowed, and the primary reason that it is flat but not declining is that households are putting less into their savings. Energy prices remain a drag on household incomes and rising prices account for the largest month-to-month drop in real wages since September 2005."

Deloitte's analysis of factors influencing consumer spending further indicate:

Personal income and spending data for August were disappointing. Real incomes dropped 0.3 percent while spending was up just 0.1 percent from the previous month. While overall spending is up 2 percent from a year ago, growth in the past three months has been tepid, falling 0.1 percent in June, rising 0.37 percent in July and increasing just .08 percent in August. The savings rate also fell from 4.1 to 3.7 percent in the most recent month.
Energy prices remain an important factor. Gas prices usually decline in autumn as the summer driving season ends, but in a highly unusual turn, they have continued upward this fall.
The labor market remains a drag on the Index and the broader economy. Claims have moved up and down and hiring seems limited. Job gains over the summer were very weak.

The Index, which comprises four components — tax burden, initial unemployment claims, real wages and real home prices — rose to 3.53 from a reading of 3.27 the previous month.

"The ups and downs in housing, employment and energy costs may have given consumers pause this past month," said Alison Paul, vice chairman, Deloitte LLP and retail & distribution sector leader. "As the holidays get into full swing, however, we anticipate shopper enthusiasm will be renewed. Turning their attention away from politics after the election, consumers can get back to the business of shopping. Retailers should benefit from a predicted 3.5 to 4 percent increase in November through January holiday sales over last year, and non-store channels such as online, catalogs and interactive TV, are expected to increase 15 to 17 percent. In addition to generating non-store sales, retailers can lift brick-and-mortar performance by using digital channels' influence to drive in-store traffic and conversion."

Highlights of the Index include:

Tax Burden: The tax burden rose slightly in the most recent month to 11.05 percent. A rising tax burden is often a sign of healthy income growth.

Initial Unemployment Claims: Jobless claims moved higher this month to 371,000, and were 2 percent higher than this time last year.

Real Wages: Rising energy prices sent real wages tumbling to $8.71 -- the largest month-to-month drop since September 2005.

Real Home Prices: In a thin market, housing prices can be volatile as the mix of homes sold becomes more significant. Real home prices soared 10.5 percent in the latest month accounting for all of the gain in the Index.

Following is a historical analysis of Deloitte's Consumer Spending Index compared to real consumer spending: http://www.deloitte.com/view/en_US/us/press/459de74a3745a310VgnVCM3000003456f70aRCRD.htm

About Deloitte's Retail & Distribution Practice

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[i] The Deloitte Consumer Spending Index is a proprietary methodology that analyzes economic factors to gauge consumer cash flow as an indicator of future spending. Deloitte's analysis includes data from the U.S. Commerce Department, Bureau of Economic Analysis, U.S. Bureau of the Census, U.S. Department of Housing and Urban Development and the U.S. Department of Labor.

SOURCE Deloitte