Deloitte Consumer Spending Index Continues Positive Momentum

The Deloitte Consumer Spending Index (Index) rose in October for the fifth consecutive month, driven in large part by real wage growth.

NEW YORK -- The Deloitte Consumer Spending Index (Index) rose in October for the fifth consecutive month, driven in large part by real wage growth. The Index attempts to track consumer cash flow as an indicator of future consumer spending.

"The continued rise in the Index points to a significant improvement in the fundamentals of household financials," said Carl Steidtmann, chief economist with Deloitte Research, a subsidiary of Deloitte Services LP, and author of the monthly Index. "The housing market's negative impact on the Index has lessened in recent months with the slowing decline in home prices, and initial unemployment claims continue to fall. The greatest impact on the Index comes from real wages, which are up 4.8 percent from a year ago on falling prices. If these economic indicators maintain their direction, real consumer spending may turn positive before the end of the year."

The Index, comprising four components -- tax burden, initial unemployment claims, real wages and real home prices -- rose to 4.12 percent, from an upwardly revised gain of 3.56 percent a month ago.

"Consumers may be encouraged by improving economic conditions, but they may also need an incentive to increase their spending," said Stacy Janiak, vice chairman and Deloitte's Retail leader. "The intersection of the holiday season with these signs of recovery may provide that motivation. Retailers should consider improving the service offerings that appeal to consumers' modified and judicious spending habits. These may include layaway plans, mobile commerce capabilities, exclusive limited-time offers and customer interaction via social media. Promotions that tie charitable contributions to purchases may also appeal to customers looking to bring a more meaningful element into their holiday activities."

Highlights of the Index include:

Tax Burden: The tax burden has stabilized in recent months. The tax burden is at a level only seen on a few occasions over the past 50 years during brief periods following tax rebates.

Initial Unemployment Claims: Initial claims have come down sharply over the past three months which historically has been a reliable signal of economic recovery. Claims are down more than 125,000 from their recession peak.

Real Wages: Real wage growth continues to post solid gains due in large part to falling prices. Real wages are up 4.8 percent from a year ago as falling prices have given a big boost to consumer purchasing power. This is the single largest contributor to the rise in the index.

Real Home Prices: The pace of decline in home prices has slowed significantly on a year over year basis. Continued efforts to forestall foreclosures coupled with the extension of the tax credit for first time home buyers have brought some stability to the home prices. The decline in home prices has made home buying much more affordable.

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