Still Down: Deloitte Consumer Spending Index

Michelle Remo, “Big 4″ observer
November 30, 2011 /

The “faltering” housing market has been blamed for the still poor Deloitte Consumer Spending Index (Index) that fell in October.

“Real home prices continue to fall despite low interest rates and may continue downward given high inventory levels and mortgage defaults,” said Carl Steidtmann, Deloitte’s chief economist and author of the monthly Index.

“Additionally, a slight rise in initial jobless claims and declining real wages strain consumers’ confidence and income levels, which may cause spending power to slide by early 2012,” Steidtmann added.

The Index consists of four components — tax burden, initial unemployment claims, real wages, and real home prices. It fell to 1.80 from 2.47 the previous month. The Index is at the lowest level since April 2009.

“It’s a tale of two consumers this holiday season,” said Alison Paul, vice chairman and U.S. retail & distribution sector leader, Deloitte LLP.

“Consumers in higher-income brackets appear to have healthier balance sheets and spending intentions, whereas consumers in lower- and middle-income groups face greater challenges due in part to higher costs for energy and food prices,” Paul said.

The Index shows that the tax burden remains essentially unchanged at 10.9 percent after almost two years of improvement. A stagnant tax burden is typically a sign of a stalling economy.

The Index also highlighted that initial unemployment claims increased to 418,000 after hovering around the 400,000 mark the past six months.

Real wages fell 2.4 percent from a year ago. The decline in real wage growth is accelerating, particularly as energy prices take their toll on consumers.

Real home prices fell sharply again and are down 13.7 percent from a year ago. Despite record-low mortgage rates and the Federal Reserve’s efforts to push rates even lower, the housing market appears to be contracting again.


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