Deloitte Consumer Spending Index Dips Under Housing Market Pressure
The Deloitte Consumer Spending Index (Index) slipped lower in February, primarily due to spiraling home prices. The Index tracks consumer cash flow as an indicator of future consumer spending.
“With the exception of a small improvement in initial unemployment claims, the Index components – including real home prices, the tax burden and real wages — landed in negative territory,” explained Carl Steidtmann, Deloitte’s chief economist and author of the monthly Index.
“The decline in home prices is accelerating and likely to continue. Challenges in the housing market coupled with rising energy prices may weaken household spending power in the months ahead.”
While the U.S. Bureau of Economic Analysis revised real incomes from July through December up by roughly 1 percent, real income growth is down to 0.5 percent in January and has steadily decelerated since peaking at 3.8 percent in October 2010.
The pace of gasoline price increases accelerated in February. Every penny increase costs consumers an extra $3.8 million each day. With gas prices up nearly 50 cents a gallon since mid-December, the increases translate into $5.7 billion a month and $68.4 billion a year.
The Index, which comprises four components — tax burden, initial unemployment claims, real wages and real home prices — fell to 1.49 from an upwardly revised reading of 1.88 the previous month.
“Despite limited growth in consumer spending and purchasing power, many retailers continued to improve performance,” said Alison Paul, vice chairman and Deloitte’s retail & distribution sector leader.
“Shoppers may be positively responding to retailers that integrate their customer touch points across mobile, online and physical store channels.
“Retailers can continue to use these tactics should rising gas prices cause consumers to limit or consolidate their shopping trips. Reaching consumers across multiple channels with promotions and tools to tackle more items on the shopping list are ways that retailers can simplify the shopping experience while remaining relevant and sensitive to customer needs.”
After rising steadily for the past two years, the tax burden slipped lower to 11.1 percent this month. A declining tax burden reflects weakening income growth and negatively affects the Index.
Initial unemployment claims are down 11.7 percent from a year ago to 377,250. Falling jobless claims are one of the bright spots in an otherwise darkening outlook for consumer finances.
Real wages continued to fall, albeit at a slightly slower pace than a month ago, putting average hourly earnings at $8.75.
Real home prices fell sharply again and are down more than 12 percent from a year ago.