Consumer Spending Rises As Housing Market Turns Up

Michelle Remo, “Big 4″ observer
July 20, 2012 /

Responding to improvements in the housing market, the Deloitte Consumer Spending Index (Index) posted its fourth consecutive increase in June.

The Index tracks consumer cash flow as an indicator of future consumer spending.

“The housing market is showing signs of recovering, while energy prices continue to decrease, giving a boost to consumer buying power,” explains Carl Steidtmann, Deloitte’s chief economist and author of the monthly Index. “Although consumers are financially stronger, the job market continues to affect their willingness to spend. Additionally, the oppressively hot weather impacting a large part of the country may stifle consumers’ desire to shop.”

Gasoline prices are down 20 cents in the past month but are down just 14 cents from a year ago. Unseasonably hot weather across much of the country could be offsetting some of the benefit of this price reduction.

The labor market remains very fragile, despite this month’s small decline in jobless claims. Consumer confidence has fallen sharply over the past two months due largely to the renewed weakness in job growth.

Home prices are stabilizing and even turning up in some markets. Record low interest rates are giving a small boost to demand and helping to increase refinancing activity. Most refinances are being done for a lower payment as there is little equity to be cashed out.

Tax rates are likely heading higher next year. The fiscal cliff of $1 trillion that the Federal government faces at the end of the year is made $100 billion larger due to costs associated with health care reform.

The Index, which comprises four components — tax burden, initial unemployment claims, real wages and real home prices — rose to 3.22 from a reading of 3.09 the previous month.

“Retailers can capitalize on changing consumer behavior, such as embracing shoppers’ use of mobile technology in the store,” said Alison Paul, vice chairman, Deloitte LLP and retail & distribution sector leader. “Deloitte’s research into smartphones’ influence on retail store sales revealed that smartphone shoppers are 14 percent more likely to convert in the store. Retailers should provide – not shy away from — mobile applications to capture consumers’ attention throughout the back-to-school season, particularly as smartphone use for shopping skews to younger consumers.”

The tax burden ticked up this month to 11.03 percent as the tax refund season passed.

The increase in jobless claims took a small pause this month, falling to 376,000 claims, adding slightly to the index. Claims in recent weeks have resumed their slow move higher.

Declining energy prices continue to contribute a small bump in real wages, putting average hourly earnings at $8.75.

Prices have stabilized and are turning up, and have increased 3.83 percent from last year.

 

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