Study: Improving Housing Market, Energy Prices Pos
New York, NY, October 12, 2006--The Deloitte Research Leading Index of Consumer Spending continued its decline this month; however, Deloitte expects a slight increase next month, and solid consumer spending over the next four to six months, as the job market stays strong, energy costs decline and the housing market improves.
"Consumers are catching some tail winds," says Carl Steidtmann, chief economist with Deloitte Research and author of the monthly index. "While real wages are slipping, the labor market remains quite strong, and Americans are working longer hours, which is pushing up nominal wages. Energy prices continue to come down. And, most importantly, lower mortgage rates are boosting housing activity. Over the next couple of months, we expect wages, housing and jobs to continue to improve."
The index, comprising four components -- tax burden, initial unemployment claims, real wages and real home prices -- came in at 2.93 percent, down from an upwardly revised gain of 3.01 percent a month ago.
"Consumer spending in many sectors is holding up quite well, and the decline in gas prices will likely help various retail sectors this holiday season," added Pat Conroy, vice chairman and national managing principal of Deloitte's Consumer Business practice. "Savvy retailers will capitalize on this momentum by converting shoppers into buyers and increasing share of wallet with in-stock merchandise and superior customer service."
As announced on September 28, 2006, Deloitte's Consumer Business practice expects that holiday sales, excluding autos and gasoline, will increase 7 percent during the November-to-January period, less than last year's exceptional 7.8 percent increase, but still above the past decade's average growth rate. Deloitte's 21st Annual Holiday Survey of retail spending and trends -- including total planned spending, rankings of categories, "must have" gifts, an update on gift cards, and much more -- will be issued in early November.
Highlights of the index, which tracks consumer cash flow as an indicator of future consumer spending, include:
* Tax Burden: Personal income tax burden continues to rise slowly and is up more than 1.0% of income from a year ago. Faster growth and higher
incomes push more households into higher tax brackets and expose more
households to the alternative minimum tax.
* Initial Unemployment Claims: Since the first of the year, claims have
consistently averaged between 300,000 and 325,000 a week. As a share of
total employed, claims are lower than at any time since the 1960s.
Employer surveys also point to continued labor market improvement. A
tighter labor market is an important element in forecasting future
improvement in household cash flow.
* Real Wages: After rebounding earlier this year, real hourly wages are
again slipping. Real wages have been hurt by the summer run up in
energy prices. The recent sharp drop in energy prices still has not
worked its way through to higher real wages, but when it eventually
does, it should have a positive effect on the index.
* Real Home Prices: While the peak in the housing market has passed, real
home prices rose in the most recent month but are down from a year ago.
Lower mortgage rates are putting a floor under home prices and should
reduce the negative effect of housing on the index going forward.
