Deloitte Consumer Spending Index Slips, Ending Four Consecutive Months of Improvement
The Deloitte Consumer Spending Index (Index) decreased slightly in July marking the first decline since February 2012. The Index tracks consumer cash flow as an indicator of future consumer spending.
“The Index slipped primarily due to a drop in real new home prices and a slight rise in jobless claims that offset improvements in real wages,” said Carl Steidtmann, Deloitte’s chief economist and author of the monthly Index. “Consumers enjoyed lower energy costs during the first half of the summer, but a rapidly increasing savings rate suggests they have put some recouped funds away for a rainy day rather than spending it. However, gas prices have started to tick back up. If confidence remains under pressure due to stagnant job growth, a stumbling housing market and Europe’s financial crisis, consumer spending may begin to contract heading into autumn.”
Despite low interest rates, interest income is rising, possibly reflecting an allocation shift from stocks into bonds that has accelerated in recent months.
In the past two months the savings rate has increased from 3.6 percent to 4.4 percent. While a rising savings rate is a long-term positive, in the short run it takes away from consumer spending. This can also be interpreted as a sign of growing consumer caution.
Historically, a rise in savings has been more of a negative for auto sales than for store-based retailers. Auto sales have been partly responsible the weakness in monthly retail sales numbers from the Commerce Department.
The price of gasoline has plummeted since early April. However, this may come to an end as gasoline prices have moved back up in recent weeks, which is unusual as prices historically fall slightly from the end of June to the beginning of August.
The Index, which comprises four components — tax burden, initial unemployment claims, real wages and real home prices — fell to 3.25 from an upwardly revised reading of 3.27 the previous month.
“Consumers responded favorably to markdowns and promotions in July, and we anticipate retailers will finish the summer strong as families restock before sending their children off to school,” said Alison Paul, vice chairman, Deloitte LLP and retail & distribution sector leader. “However, that momentum may be seasonal and temporary if the Index’s decline is more than a blip on the radar. If concerned consumers decide to tighten their purse strings, retailers may not feel the impact until the beginning of the holiday season. Since retailers placed their holiday orders early in the year, they should map out scenarios that will help them navigate shifts up or down in consumer demand, and quickly adjust pricing, inventory and promotional strategies accordingly this fall.”
Income tax averaged 11.06 percent. The tax burden’s rate of increase slowed slightly last month, giving a small boost to the Index.
Jobless claims increased slightly in the most recent month to 385,000.
Declining energy prices continued to lift real wages slightly, putting average hourly earnings at $8.77.
The big change this month was a reversal in the improvement in new home prices, which are down 4.77 percent from a year ago.