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Consumer Spending Index Reaches Two-Year High

The Deloitte Consumer Spending Index rose 11.7% in September 2009, climbing from and adjusted score of 3.08% to 3.44%. This is the second straight month the Index - which is designed to track consumer cash flow as an indicator of future spending - has hit a new high since reaching 3.07% in October 2007. 

The Index comprises  four components - tax burden, initial unemployment claims, real wages and real home prices. Following is a brief overview of Deloitte’s analysis of each component.

Tax burden: The tax burden continues to fall with the weakening of the economy, Deloitte said.  The current level only has been seen on a few occasions during the past 50 years in brief periods following tax rebates. Continued decline is expected.

Initial unemployment claims: New monthly claims have dropped from a peak of approximately 694,000 in March 2009 to about 263,000 in September. A sustained decline in initial unemployment claims is often seen as an early sign of a recovery in the economy.

Real wages: Real wage growth continues to post small gains, large part because of falling prices for energy. Real wages are up 4.8% from a year ago, as falling prices give consumers more buying power.

Real home prices: The pace of decline in home prices has slowed significantly on an annual basis. Continued efforts to forestall foreclosures, coupled with a tax credit for first-time home buyers, have brought some stability to the housing market.

A comparison of the Consumer Spending Index with other government and private consumer and economic indices generally indicates the likely future of consumer spending is less rosy than Deloitte is painting it, at least in the near term, although some signs of optimism do exist, writes Retailer Daily.