The Deloitte Consumer Spending Index declined in July 2010 for the third consecutive month, once again due to weakness in the housing market.
This three-month slide follows a two-month string of gains caused by an improving US employment picture.
Index Drops to 4.45%
The Index, which attempts to track consumer cash flow as an indicator of future consumer spending, dropped from an upwardly revised score of 4.63% in June 2010 to 4.45% in July 2010, a 3.9% decline. This reflects a moderate improvement from the declines of the previous two months. In June 2010, the index fell from its May reading of 4.93%, a 6% drop. In May 2010, the Index fell from 5.15%, a 4.3% drop.
In contrast, in April 2010, the Index rose from a revised score of 4.64%, a healthy 11.1% increase. The previous month, the Index rose an also impressive 10.21%, from a score of 4.21%.
Despite its third straight decline in July 2010, the Index still remains at one of its highest levels in the past six years. Real hourly earnings, after experiencing growth in 2009, deteriorated for the first six months of 2010 but ticked upward in July. The main negative contributor appears in real home prices, which resumed their downward trend in May 2010 after a short, two-month upward climb spurred by tax credits which have since expired.
Tax rates, which had declined sharply during the recession, have basically held steady since the start of this year.
Alison Paul, vice chairman and Deloitte’s retail leader in the US, said American households continue to be cautious about spending while economic growth follows an uneven pattern. “Consumers economized during the past two years and likely have pent up demand for goods they have foregone,” said Paul. “Retailers should consider strategies to stay nimble amid shifts in consumer behavior in the months ahead. Customer data and business analytics may be particularly valuable for retailers to hone pricing, merchandise and promotions that attract their target consumers.”
Employment Gains May Soften
The Index comprises four components ? real home prices, tax burden, initial unemployment claims, and real wages.
Real Home Prices: Real home prices have fallen for two consecutive months. Home buying activity has declined in recent months due to the ending of the tax credit. Prices are likely to remain depressed for a while longer until demand strengthens again.
Tax Burden: The consumer’s tax burden declined sharply through most of the recession. In 2010, however, the rate has held steady, although it continues to be down from year-ago levels.
Initial Unemployment Claims: Initial unemployment claims fell for the seventh consecutive month, although the year-over-year declines are lessening. Unemployment claims peaked in the spring of 2009. While claims are still elevated, they are down nearly a third from their peak.
Real Wages: Real wages moved back into positive territory following five consecutive declines. The upturn, however, was slight. The recent weakness in employment and hours worked are unfavorable developments for US households.
Home Buyers Happier than Sellers
Reflective of the real estate buyers’ market conditions in many regions in the US, satisfaction with real estate companies among home buyers has improved from 2009, while satisfaction among home sellers has declined, according to the J.D. Power and Associates 2010 Home Buyer/Seller Study.
Overall satisfaction among home buyers averages 803 on a 1,000-point scale in 2010, increasing by 12 points from 2009. This improvement is primarily driven by increased satisfaction with agents and salespersons.
In contrast to home buyer results, overall satisfaction among home sellers has declined by 40 points from 2009 and averages 742 in 2010. Among home sellers, satisfaction has decreased in all four factors, with the largest declines observed in marketing of the home and the variety of additional services offered.