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RISMEDIA, January 16, 2010—The Deloitte Consumer Spending Index dipped slightly in December 2009, primarily due to a decline in real wages, but it remains near its highest level since 2004. The Index attempts to track consumer cash flow as an indicator of future consumer spending.

“The most notable shift in the Index results from inflation, primarily due to rising energy prices, which is undermining the gains in real hourly earnings,” said Carl Steidtmann, chief economist with Deloitte Research, a subsidiary of Deloitte Services LP, and author of the monthly Index. “This increase in prices is offsetting the improvement in other components of the Index that boost consumer purchasing power, including a steadily falling tax burden, a sustained drop in initial unemployment claims over the past several months and signs of stabilization in the housing market.”

The Index, comprising four components- tax burden, initial unemployment claims, real wages and real home prices- slipped to 4.63%, from an upwardly revised gain of 4.66% a month ago.

“Inflation can significantly change the pricing environment for retailers, particularly at a time when consumers are already closely monitoring their spending levels,” said Stacy Janiak, vice chairman and Deloitte’s U.S. Retail leader. “Retailers that have been focused on lowering product costs and preserving margins should keep their foot on the pedal to maintain and accelerate those efforts given the prospect for continued inflationary pressure. Efforts to seek out less costly product and supply alternatives, grow private label offerings and identify greater supply chain efficiencies should remain high on retailers’ lists of resolutions for the new year.”

Highlights of the Index include

Tax Burden: The tax burden, after stabilizing, is again moving lower. The average tax burden is at its lowest level in more than 40 years due to the effects of the stimulus bill passed in February 2009.

Initial Unemployment Claims: Initial claims have come down sharply over the past six months, which historically has been a reliable signal of economic recovery. Claims are down more than 200,000 from their recession peak and are down from a year ago.

Real Wages: Real wage growth, which had been the biggest contributor to the Index in recent months, is beginning to slip as energy prices are pushing up the price level and hurting the real purchasing power of modest wage growth.

Real Home Prices: The pace of decline in home prices continues to slow on a year-over-year basis. Government efforts to forestall foreclosures, coupled with the extension and expansion of the tax credit for home buyers have brought some stability to home prices. The decline in home prices has made home buying much more affordable.

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