Employment Continues Benefiting Consumer Spending

May 14, 2010

This article is included in these additional categories:

Analytics, Automated & MarTech | Data-driven | Financial Services | Retail & E-Commerce | Staffing

For the second straight month, an improving U.S. employment picture helped push the Deloitte Consumer Spending Index upward in April 2010.

The Index, which attempts to track consumer cash flow as an indicator of future consumer spending, rose from a revised score of 4.64% to 5%, a healthy 7.7% increase, in April 2010. The previous month, the Index rose an even more impressive 10.21%, from a score of 4.21%.

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In addition to brighter employment prospects, several other factors also aided the Index’s April 2010 performance. The housing market made a positive contribution for the first time since spring 2007, and historically low tax rates offset a continuing decline in real wages. Deloitte advises that if proposed tax increases go through, they could have a negative impact on Index performance later this year.

Stacy Janiak, vice chairman and Deloitte’s retail leader in the United States, suggests that retailers adapt their store layout and marketing techniques to recession-influenced changes in consumer shopping behavior.

“Investments in improving the customer experience across all channels, via store remodels or more seamless multi-channel technology, may benefit retailers as they prepare for the back-to-school and holiday selling seasons,” said Janiak. “Retailers should also consider shifts in their marketing and advertising spend to a cost-effective mix of visual merchandising and mobile and social media marketing to reach target customers both in-store and online.”

Analysis of Each Index Component
The Index comprises four components ? tax burden, initial unemployment claims, real wages and real home prices.

Tax Burden: The consumer’s tax burden declined sharply through most of the recession. In early 2010, however, the rate has basically held steady. It remains at an historically low level.

Initial Unemployment Claims: The employment cycle has turned around. Employment has risen for three of the last five months, and with companies now hiring, Deloitte predicts that new unemployment claims are likely to continue shrinking in coming months.

Real Wages: Real wages, which just a few months ago were contributing to the Index’s improvement, have recently been deteriorating. Real hourly earnings declined for the third consecutive month in April 2010. Nominal wages (not adjusted for inflation) have been flat in recent months, and slightly higher inflation is causing the decline in real wages.

Real Home Prices: Home buyers are being enticed by the tax credits that are coming to a close. Thus, home sales have recently improved. With demand firming, real home prices rose for the first time since spring 2007.

Unemployment Rises Despite 290K New Jobs
Overall, the official U.S. unemployment rate rose to 9.9% in April 2010 after three straight months of flat performance, according to the Bureau of Labor Statistics. However, as reported by Retailer Daily, the U.S. economy added 290,000 non-farm payroll jobs last month, following a strong addition of 162,000 non-farm payroll jobs in March 2010.

The more optimistic Conference Board Employment Trends Index rose 0.8% in March 2010, from a revised score of 93.9 to 94.7. This marks the eighth straight month the Employment Trends Index (ETI) has risen, signifying what the Conference Board says is slowing job growth. The Conference Board expects the recent overall increase in economic activity to moderate during the second half of 2010.

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