Index of Consumer Spending by Deloitte Increases in June

June 11, 2008  by in UnCategorized   

By Home Furnishings Business in on June 2008 Consumer spending in June increased a slight blip, according to the latest Deloitte Research Leading Index of Consumer Spending.

The shift broke the free-fall the Index, which tracks consumer cash flow and spending, has experienced since October.

The Index, comprising four components—tax burden, initial unemployment claims, real wages and real home prices—increased to 1.62 percent, from a revised gain of 1.26 percent a month ago.

“The upturn in the Index is a result of key indicators performing relatively better than in previous months,” said Dr. Ira Kalish, Consumer Business director, Deloitte Research. “The tax burden decreased, and we saw a lower decline in real wages compared to the previous month. However, house prices continue to pull the index down sharply and a weak employment situation is the key risk for consumer spending in the months ahead.”

Highlights of the Index include:

• Tax Burden: The average income tax rate continues to fall and is the only factor contributing positively to the Index on a sustained basis.

• Initial Unemployment Claims: Labor demand weakened significantly with job losses totaling 260,000 between January and April. The unemployment situation is a headwind for spending with expectations for an increase in the unemployment rate this year. Job losses were widespread in construction, manufacturing, professional and business services and retail trade sectors.

• Real Wages: Real wages declined in April, but at a lower rate than the previous month. The rate at which consumer prices are increasing has slowed in the first four months of this year compared to 2007. The outlook for real wages is negative due to the sustained increases in energy and food prices.

• Real Home Prices: Home prices fell 9 percent in April and the pace of home price declines is slowing; however, a recovery is not in sight, with enough housing inventories built up to last 10 months at the current sales pace.

“Federal income tax rebate checks helped consumer spending in May, and retailers that offer incentives to spend those checks could benefit this summer,” said Stacy Janiak, the U.S. Retail sector leader at Deloitte. “Consumers are being frugal and holding back discretionary spending—they continue to focus on the basics, which is helping discounters, wholesale clubs and drug stores. Retailers will need to continue to aggressively woo consumers and find creative ways to present their merchandise in order to get their share of consumer spending.”