Holiday Spending Solid, Outlook Positive, Says Deloitte Research Leading Index of Consumer Spending

 Print Article

RISMEDIA, Jan. 12, 2007-The Deloitte Research Leading Index of Consumer Spending rose sharply again this month, due to a rebound in home prices and the strongest growth in real hourly earnings in nearly a decade.

"For the second month in a row, we saw a drama tic increase in real wages, fueled by lower energy prices, a strong labor market and some recovery in the housing market," says Carl Steidtmann, chief economist with Deloitte Services LP's Deloitte Research and author of the monthly index.

"In addition, the recent increase in mortgage refinancings indicates that consumers will have additional cash in their pockets in the coming months, giving further credence to our optimistic outlook for spending."

The index, comprising four components — tax burden, initial unemployment claims, real wages and real home prices — rose sharply to 4.06%, from an upwardly revised gain of 3.68% a month ago.

"Despite the unseasonably warm weather, which kept consumers from buying winter merchandise, many retailers had a strong holiday season and the overall results were quite solid," added Pat Conroy, a vice chairman of Deloitte & Touche USA LLP and national managing principal of its Consumer Business industry practice. "January and February should be quite strong as consumers redeem their gift cards, and retailers should focus on ways to upsell those consumers to maximize sales and profits. In addition,
retailers will enhance customer loyalty-and enhance shareholder value-by making strategic choices around service, merchandise, store layout and other factors that are key for their customer base."

Highlights of the index, which tracks consumer cash flow as an indicator of future consumer spending, include:

– Tax Burden: Personal income tax burden continues to rise slowly and is up more than 1% of income from a year ago. Faster growth and higher incomes push more households into higher tax brackets and expose more households to the alternative minimum tax.

– Initial Unemployment Claims: Claims have bounced around in a wider range in recent weeks as layoffs in the auto and construction industries have pushed the weekly number slightly higher. Continued weakness in homebuilding could become a major drag on the index as unemployed construction workers depress employment growth.

– Real Wages: The combination of lower energy prices and a tightening labor market has produced the strongest real wage growth since 1998, boosting consumer purchasing power and giving a large boost to the index. Continued downward movement in energy prices bodes well for consumer purchasing power in the New Year.

– Real Home Prices: While the peak in the housing market has passed, real home prices rose for the second month in a row but are still down from a year ago. Both new and existing home sales have risen in recent months. With new home construction down, builders are working hard to bring inventories into line with demand. The rebound in sales has given a little lift to home builder sentiment.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.