Downward Trend for Consumer Spending Continues – Deloitte

Michelle Remo, “Big 4″ observer
June 20, 2011 /

A sharp increase in unemployment last month has dragged down the consumer spending index according to global consulting and accounting firm Deloitte.

Deloitte Consumer Spending Index monitors the cash flow of consumers, indicating the future of their spending activities.

In November 2010, a survey conducted by Deloitte showed that higher taxes and public spending that faced shoppers were likely to bring retail sales down by 2011 from its projected 1 percent rise during Christmas.

Carl Steidtmann, Deloitte’s chief economist and author of the monthly Index, said in a statement that “the labor market indicators are the primary cause of weakness in the Index, however the economy is up against other temporary headwinds that suggest weak growth may persist for the near term.”

“Rising food and energy prices continue to hurt real wages, which combined with Americans’ insecurities about the job market, compound the pressure on consumer spending,” Steidtmann said.

The Index consists of tax burden, initial unemployment claims, real wages, and real home prices. From 3.29 percent revised gain last month, the figure fell to 2.66 percent.

“Prices for everyday necessities continue to climb, leaving consumers with fewer discretionary dollars to spend,” said Alison Paul, vice chairman and U.S. retail & distribution sector leader, Deloitte LLP.

“As retailers are also challenged by rising prices, they should consider using some of the latest tools and analytics capabilities to more surgically improve margins while keeping prices low on traffic builders,” Paul added.

“Leveraging their rich transaction data in combination with new advanced analytics techniques can help to maximize sales without alienating loyal consumers. Insights into spending patterns, product preferences and price sensitivities can help retailers apply strategies to respond to a more selective consumer and keep costs in check,” Paul said.

On the other hand, the tax burden inched up to 10.15 percent from 9.1 percent a year ago. An increase in tax burden indicates an improving economy.

Meanwhile, current recovery is at risk as the labor market continues to decline. Initial unemployment claims have sharply surged to 432,500 following the below 400,000 barrier break down from October 2010 to March 2011.

In the most recent month, real wage growth fell by 0.8 percent from a year ago and stalled from the rising energy and food prices, according to Deloitte.

Additionally, real home prices continue to decline, though at a slightly slower pace.

“Prices over the past three months have shown some stability but are still down 3.3 percent from a year ago. New home inventories are almost back to normal levels despite record low level of transactions,” Deloitte reported.

 

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