Rising tax rates, combined with declines in real wages and median home prices, drove the third straight monthly decline in the Deloitte Consumer Spending Index during February 2010.
Real wages, exacerbated by rising energy costs, have been serving as a drag on consumer spending since December 2009. However, in February 2010, state and local tax increases and possibly weather-related weakness in home prices also contributed to a 7.8% dip in the Consumer Spending Index, which dropped from an upwardly revised score of 4.5% to 4.15%. The Index attempts to track consumer cash flow as an indicator of future consumer spending.
The Index, comprising four components ? tax burden, initial unemployment claims, real wages and real home prices ? slipped to 4.5% in January 2010 from 4.64% in December 2009. Previously, the Index grew for six straight months between June and November 2009. However, the Index is still well above its recent low point of 3.07% in October 2007.
Despite this recent downward trend, Deloitte still advises retailers to be prepared for an increase in consumer spending in the near future, and possibly investigate the use of IT to help them provide customers with the products they want.
“Consumers have been resilient in the face of adversity and have gradually shown they are regaining their willingness to spend,” said Stacy Janiak, vice chairman and Deloitte’s US retail leader. “In the coming months, retailers should be prepared to respond to a potential uptick in activity, or risk having empty shelves when consumers are ready to replenish. Retailers that have systems in place to quickly analyze and respond to customer data may be better prepared to replenish inventory and stock the right assortment to capitalize on a release of pent-up demand.”
Analysis of Each Index Component
Tax Burden: The average tax burden has moved off its lowest level in 40 years. The rate rose by nearly a half percentage point of income.
Initial Unemployment Claims: Unemployment claims have come down sharply during the past nine months, which historically has been a reliable signal of economic recovery. In the past month, however, claims have gone back up slightly.
Real Wages: Real wage growth, the biggest contributor to the Index until recent months, is down slightly compared to a year ago as energy prices are pushing up the price level and hurting the real purchasing power of modest wage growth.
Real Home Prices: The housing market deteriorated in the most recent month, possibly due to weather. Mortgage applications are declining sharply. The weakness in home prices could be a weather-related phenomena or it could be a sign that the economy is deteriorating after a brief second half bounce in 2009.
Spending Remains at Pre-holiday Levels
As reported by Retailer Daily, the Consumer Reports Past 30-Day Retail Index for March 2010, which reflects the purchases consumers made in February 2010, is at 11.1, virtually unchanged from 10.9 the prior month. This number stands firmly at pre-holiday levels, indicating that consumers are hesitant to do any spending in this uncertain job market. Of all the categories that comprise the Past 30-Day Retail Index, only spending on major appliances and personal electronics showed modest gains.
The Next 30-Day Retail Index, which reflects the purchases consumers plan to make in March, is at 7.3, which is below pre-holiday levels and marks the lowest levels tracked since August 2009 (7.5).
Job Stability May Lead to Spending
In one piece of hopeful news for retailers, seven in 10 Americans consider their job situation today “just as stable” or “more stable” than last year, according to the March 2010 American Express Spending & Saving Tracker. The Tracker also indicates this feeling of job stability often leads to higher spending. Sixty percent of respondents reporting they have more job stability have increased their spending and investments. Popular areas for increased spending include discretionary categories such as dining out (35%) and travel (31%).
