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Leading index of consumer spending - August 2009

Index points upward in July

The Deloitte Consumer Spending Index rose in July, steered by falling unemployment claims and tax burdens, along with a rise in real wages. The Index attempts to track consumer cash flow as an indicator of future consumer spending.

“The uptick in the Index may give retailers and their suppliers a reason for cautious optimism going forward,” said Carl Steidtmann, chief economist with Deloitte Research, a subsidiary of Deloitte Services LP, and author of the monthly Index.  “In previous months, home prices were a significant drag on the Index, but the decline is lessening as the housing market is beginning to show signs of stabilizing.  Initial unemployment claims have fallen sharply from their spring peaks and real earnings are up 4.5 percent from a year ago on falling prices, giving a boost to purchasing power.  On top of this, tax rebates from the stimulus bill have brought the tax burden on consumers down to record lows.  However, recovery is being delayed by a sharp increase in consumer savings.”

The Index, comprising four components ― tax burden, initial unemployment claims, real wages and real home prices ― rose to 2.15 percent, from an upwardly revised gain of 1.85 percent a month ago.  The strength in the number was driven by all of the index components with the exception of real home prices.

“The factors contributing to the recent increases in the Index suggest that consumers have the means to spend, which, when coupled with an expected improvement in confidence, could release some pent up demand in the months to come,” said Stacy Janiak, vice chairman and U.S. Retail leader, Deloitte LLP. “As a result, retailers should be strategizing to more quickly adapt to changes in consumer buying patterns.  In particular, use of advanced analytics to manage inventories and create pricing and promotion scenario plans could be an important catalyst in capturing greater market share and improving profitability this holiday season.”

Highlights of the Index include:

Tax burden: The tax burden continues to fall with the weakening of the economy.  The tax burden is at a level only seen on a few occasions over the past 50 years during brief periods following tax rebates.  Continued decline is expected.

Initial unemployment claims: Claims have come down sharply over the past three months which historically has been a reliable signal of economic recovery.

Real wages: Real wage growth continues to post solid gains due in large part to falling prices. Real wages are up 4.5 percent from a year ago as falling prices have given a big boost to consumer purchasing power. 

Real home prices: Home prices continue to fall on a year over year basis but at a slower pace. Renewed efforts to forestall foreclosures coupled with a tax credit for home buyers have brought some stability to this market.  The decline in home prices has made home buying much more affordable.

For more information, visit Deloitte’s Retail group.

About Deloitte
As used in this document, "Deloitte" means Deloitte LLP and Deloitte Services LP, a subsidiary of Deloitte LLP. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

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