Consumers Tighten on Spending: Deloitte Survey

July 18, 2010  by in UnCategorized   

By Home Furnishings Business in economic news on July 19, 2010

Consumers moved a bit farther back into their caves in June, according to the Deloitte Consumer Spending Index.

The Index, which tracks consumer cash flow as an indicator of future consumer spending, dropped to 4.5 percent from an upwardly revised gain of 4.93 percent a month ago. The Index includes four components€”tax burden, initial unemployment claims, real wages and real home prices.

"Real hourly earnings, after experiencing growth in 2009, have deteriorated in 2010 and continue to drag on the Index," said Carl Steidtmann, chief economist with Deloitte Research and author of the monthly Index. Deloitte Research identifies, analyzes, and explains the major issues driving today's business dynamics and shaping tomorrow's global marketplace.

"The other negative contributor appears in real home prices, which resumed their downward trend after a short, two-month upward climb," Steidtmann said. "However, initial unemployment claims remain a bright spot in the Index, with the employment picture slowly improving and initial claims showing a consistent six-month decline. While the tax rate remains at historically low levels, the tax burden may start to edge higher in coming months as new tax legislation goes into effect."

Alison Paul, vice chairman and Deloitte's retail leader in the United States, said the upcoming back-to-school season gives retailers a chance to attract consumers and entice them into buying.

"Consumers may monitor prices and resist impulse buys should they continue to act cautiously," Paul said. "Retailers that can entice shoppers by pulling the right customer conversion levers and provide a helpful and exciting cross-channel shopping experience may be better positioned to lead the pack this back-to-school season."

Highlights of the Index include:
Initial Unemployment Claims: As the employment cycle continues to improve, unemployment claims continue to fall. Although employment gains recently have softened a bit, claims are expected to continue to move downward, though perhaps at a somewhat slower pace.

Real Wages: Real hourly earnings slipped for the fifth consecutive month. With increasing signs that economic growth is softening, real wages could stagnate for a while longer.

Real Home Prices: Home sales quickly fell back with the ending of the homebuyer tax credit. As a result, home prices have also deteriorated and will likely remain soft for several more months. Thus, real home prices may remain a drag on the Index for a while longer.

Tax Burden: The consumer's tax burden declined sharply through most of the recession. In 2010, however, the rate has basically held steady. It remains at a historically low level.