Consumer Spending Slips on Taxes, Wages, Home Valu
New York, NY, August 10, 2006--The Deloitte Research Leading Index of Consumer Spending continued to move down this month, projecting a difficult retail environment due to a weaker job market, high energy costs and continued softness in the housing market.
"Retail sales growth in the second quarter slowed marginally from the first quarter's strong pace," says Carl Steidtmann, chief economist of Deloitte Research and author of the monthly index. "Meanwhile, retail employment has fallen from a year ago. Hopefully, retailers are finding productivity-based solutions, and are not sacrificing customer service--and its valuable impact on the customer experience--for a few margin points."
"We continue to believe that this back-to-school season will be better than last year's, which was weak due to the record hurricane season," continued Steidtmann. "However, the housing market in particular is having a negative impact on consumers spending and confidence."
The index, comprising four components--tax burden, initial unemployment claims, real wages and real home prices--came in at 3.10 percent, down from an upwardly revised gain of 3.24 percent a month ago.
"During the upcoming holiday season, retailers should focus on creative ways to 'upsell,'" added Pat Conroy, vice chairman and national managing principal of Deloitte's Consumer Business practice. "These might include bundling items, combining products with services, or including a gift card with the purchase to encourage the customer to return to the store. All of these strategies can have a positive impact on sales as well as margins."
Highlights of the index, which tracks consumer cash flow as an indicator of future consumer spending, include:
* Tax Burden: The growth in personal tax burden continues to accelerate.
Federal tax receipts from personal income are up 15.4 percent from a
year ago, on top of a 15.5 percent gain in 2005. Faster growth and
higher incomes push more households into higher tax brackets and expose
more households to the alternative minimum tax.
* Initial Unemployment Claims: Initial unemployment claims have dropped in
recent weeks after rising modestly this past spring. While job growth
remains sluggish, employers do appear to be trying to hold on to the
workers they currently have.
* Real Wages: Real hourly wages were down slightly in the most recent
month from a year ago. Real wages continue to be reduced by higher
energy prices.
* Real Home Prices: Real home prices fell again in the most recent month
and are down slightly from a year ago. Unsold home inventory for both
new and existing homes are at decade high levels and point to continued
softness in home prices for the foreseeable future.
