Consumer Spending Index Rises in July

NEW YORK, Aug. 12, 2011 /PRNewswire/ — Bolstered by a rise in home prices and a slight improvement in real wages, the Deloitte Consumer Spending Index rose in July for the first time since January. The Index tracks consumer cash flow as an indicator of future consumer spending.

“The housing market is showing multiple signs of stabilizing and that is helping to ease a significant drag on consumer spending,” explains Carl Steidtmann, Deloitte’s chief economist and author of the monthly Index.  “A decline in energy prices drove an increase in real wages, perhaps giving consumers more money to spend and restoring confidence despite a weak labor market and the recent debt ceiling debate.”

The Index, which comprises four components — tax burden, initial unemployment claims, real wages, and real home prices — rose to 2.53 from a reading of 2.49 in June.

“A dip in energy prices and warmer temperatures across most of the country is offering consumers reason to take advantage of back-to-school shopping promotions,” said Alison Paul, vice chairman and U.S. retail & distribution sector leader, Deloitte LLP.  “Deloitte’s back-to-school survey indicates most consumers plan to spend more or the same on back-to-school shopping; more than 60 percent say the most important factor driving buying will be price.   Many consumers are using their smart phones to research prices, and store and discount locations — the implication being that retailers will need to be sharp on prices, promotions and assortment this year.”

Highlights of the Index include:

Tax Burden: An increasing tax burden is often the sign of an improving economy and the tax burden is up to 10.7 percent of personal income from 9.6 percent a year ago. However, it is unchanged from the previous month.

Initial Unemployment Claims: After breaking down below the 400,000 barrier from October to March, claims have increased sharply and put the economic recovery at risk.  Claims are improving but remain above the 400,000 level on a monthly basis, escalating to 427,750 in July, up from a low of 389,250 in February.

Real Wages: Real wage growth rose slightly in July due to falling energy prices.  Wages are up 0.2 percent but are down 2 percent from a year ago.

Real Home Prices: Home prices are up nearly 7 percent in July, but just 3.6 percent from one year ago.  Prices have stabilized and are slowly moving back up in some locations.  The rebound in home prices pushes a previously significant growth barrier away from the consumer.