Consumer Spending Index Dips: Deloitte

The Deloitte Research Leading Index of Consumer Spending fell in August, due primarily to a continued soft housing market and a worsening labor market, the firm said last week.

“The economy continues to be weighed down by a labor market that is getting worse and the continued softness in the housing market,” said Carl Steidtmann, chief economist with Deloitte Research, in a statement. “However, as lower energy prices begin to positively impact consumer purchasing power and a stronger dollar works its way through the economy to help retailers’ cost of goods sold, we may begin to see the economy improve.”

The Index, comprising four components—tax burden, initial unemployment claims, real wages and real home prices—fell in August to 0.88%, from a revised gain of 1.60% the month before, according to Deloitte.

“Retailers are preparing for a challenging holiday season,” said Stacy Janiak, Deloitte’s U.S. retail leader, in a statement. “They have focused on keeping inventories low, tightly managing labor costs and holding other costs in check. In fact, the inventory-to-sales ratio for non-auto retailers is down to 1.24 months, which is a record low. Over the next few months, retailers will need to continue to focus on these metrics in order to maximize their profit margins, while drawing in consumers by emphasizing value offerings.”

According to Deloitte, tax rebates greatly reduced the tax burden over the summer, giving consumers much needed cash flow. However, the impact of tax rebates has faded and will likely have little impact on spending going forward, the firm said.

Also, Deloitte noted, unemployment claims have been steadily rising and are now up more than 28% from a year ago. The labor market is steadily deteriorating, dragging down the index, the firm said.

Moreover, real hourly wages are down 1.3% from a year ago, Delloite reported.

Also, house prices fell again in August but at a faster pace, and home mortgage refinancing has all but disappeared, reducing household cash flow, according to Deloitte. While inventories of unsold homes have improved slightly, rising foreclosures and a tighter mortgage market will likely keep downward pressure on prices, Delloitte added.