A slowdown in consumer wage growth, exacerbated by rising energy costs, contributed to the second straight monthly decline in the Deloitte Consumer Spending Index in January 2010, according to Deloitte.
The Index, which attempts to track consumer cash flow as an indicator of future consumer spending, also declined in December 2009 due to energy price inflation.
The Index, comprising four components: tax burden, initial unemployment claims, real wages and real home prices; slipped to 4.31% in January 2010, down 7.5% from an upwardly revised gain of 4.64% in December 2009. Previously, the Index grew for six straight months between June and November 2009. However, the Index is still near its five-year high and is well above its recent low point of 3.07% in October 2007.
“After rising through the summer and fall of 2009, real wages are running up against rising energy prices,” said Carl Steidtmann, chief economist with Deloitte Research, a subsidiary of Deloitte Services LP, and author of the monthly Index.
Analysis of Each Index Component
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 during 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.
Consumers Tighten Purse Strings
The recently released Consumer Reports Index also indicates that consumer spending decreased in January 2010, according to Consumer Reports. The Past 30-Day Retail Index for February 2010, which reflects the purchases consumers made in January 2010, is 10.9, a decline of 23% from 14.1 in January 2010. And consumers are planning to spend even less this month. The Next 30-Day Retail Index, which represents the number of electronics, appliances, and yard and garden equipment consumers said they’re planning to buy this month, plummeted to 6.9 from 8.9 the prior month. That’s the lowest level it has been since August 2009.
The January 2010 American Express Spending & Saving Tracker also indicates consumers are increasingly reluctant to spend money, according to American Express. Eighty-nine percent of the general population has set a clear financial goal for the year and 83% has a specific savings strategy in place, with a goal of saving on average $14,000 this year and $1,200 in the next 30 days.