Sluggish Labor Market, Inflation Haul Deloitte Consumer Spending Index

Michelle Remo, “Big 4″ observer
August 02, 2011 /

The Deloitte Consumer Spending Index (the Index) has fallen again in June due to slow improvement in the labor market and inflation.

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

In June this year, a sharp rise in unemployment dragged down the consumer spending index. Carl Steidtmann, Deloitte’s chief economist and author of the monthly Index, then said the labor market indicators caused the weakness in the Index, but added the economy was “up against other temporary headwinds that suggest weak growth may persist for the near term.”

“While most of the economic indicators contributing to the Index have remained in negative territory over the past three months, there is a positive sign in that we may be at an inflection point,” Carl Steidtmann, Deloitte’s chief economist and author of the monthly Index, commented on the most recent figures.

“The most recent month signals the beginning of stabilization in the housing market with a slight rise in real home prices. Should this momentum continue and if unemployment claims edge down, consumers may begin to regain confidence in the recovery and their finances later in the year.”

Consumer spending index fell to 2.55 from an upward gain of 2.86 in the previous month.

The index is comprised of four components — tax burden, initial unemployment claims, real wages, and real home prices.

“Given the fragile economic recovery, along with the burden of higher food and gas prices, retailers need to articulate a value message to their customers this back-to-school shopping season,” said Alison Paul, vice chairman and U.S. retail & distribution sector leader, Deloitte LLP.

“They need to engage customers through the channels where consumers are most comfortable shopping, be it in the store or via their smartphones. Whether targeting the parent making the purchase or the child influencing the sale, retailers need to ensure their physical and digital channels are aligned to give all customers a more seamless sales and service experience.”

Last month, Deloitte reported that consumers were turning to savvy shopping tactics, smartphones and social networks to keep their back-to-school spending intact in spite of a volatile economy and rising necessity costs.

On the other hand, the tax burden continues to rise slightly in the most recent report at 10.16 percent, but remains well below historic highs.

“A rising tax burden is often a sign of an improving economy,” Deloitte said.

Meanwhile, initial unemployment claims remain above the critical level of 400,000. While the monthly number was down slightly in May, the three-month moving average rose from 405,250 to 417,750.

“A rise in this indicator puts the current recovery at risk,” Deloitte said.

Average real hourly earnings remain flat for the month,which indicates that inflation kept pace with wage gains.

In addition, real home prices inched up slightly in May, but the average remains flat over the past three months. Prices appear stable after several months of steep decline.

“Should this pattern hold, it would be positive news for the consumer,” Deloitte said.


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