Depending upon which survey you read, consumer spending is on the rebound -- or continuing its decline.
The Deloitte Consumer Spending Index continued to decline in January -- hitting its lowest level since August 2009. The Index attempts to track consumer cash flow as an indicator of future consumer spending.
"Growing weakness in real wages and a tax rate that is creeping higher offset small improvements in initial jobless claims during the month of January," said Carl Steidtmann, Deloitte's chief economist and author of the monthly Index. "Although real consumer spending has been rising at a healthy pace, inflationary pressures may begin to crimp Americans' buying power in the months ahead, particularly if food and energy prices continue to climb."
The Index, made up of four components -- tax burden, initial unemployment claims, real wages, and real home prices -- fell to 3.82 percent, from an upwardly revised gain of 4 percent a month ago.
Highlights
Highlights of the index include:
- Tax Burden: With the tax benefits of the 2009 stimulus ebbing, the tax burden is pushing slowly higher and is now significantly above levels of a year ago. Extension of former President George W. Bush's 2001 tax cuts is not likely to change this trend. As the economy improves, households are pushed into higher tax brackets, raising the government's take.
- Initial Unemployment Claims: Claims continued to improve albeit at a slower pace. At year-end 2010, it looked like claims might break below the 400,000 mark, but, unseasonable weather and labor market weakness has pushed the number claims back up to the 460,000 to 425,000 range that has held over the past year.
- Real Wages: Real wage growth is beginning to fall due to rising energy prices. It is no longer the contributor to the Index that it once was through much of 2010.
- Real Home Prices: The housing market continues to weigh on the Index and the consumer. Real housing prices are declining once again. With more supply coming on the market due partly to foreclosures, prices are falling. Declining home prices create a negative wealth effect that is a drag on consumer spending.
The Harris view
On the other hand, a new Harris Poll on consumer spending and saving -- using questions that have been asked eight times since the financial and economic meltdown began -- shows some very small increases in the number of people who say they are likely to spend their money on various big ticket and other purchases.
Harris says the results are consistent with recent reports of a modest increase in consumer sentiment and spending. This poll also shows a very small decrease in the numbers of people who are saving or investing more money. However all of these very small changes could be the result of sampling and other errors that can affect all surveys.
The Harris Poll surveyed 2,566 adults online between January 17 and 24, 2011. Some of the more interesting results of this poll are:
- The percentage of all adults who report that they are likely to save or invest more money in the next six months has dropped very slightly from 52 percent in surveys in 2010 to 49 percent, the lowest number since November 2008;
- Those who say they will decrease their spending on eating out at restaurants have dropped very modestly from 66 percent last September to 63 percent now. There has been a similar three-point drop in those who are likely to reduce spending on entertainment, from 62 percent in September to 59 percent now;
- Those who say they are likely to take a vacation away from home lasting more than a week have increased from 31 percent in September to 36 percent;
- Those who expect to move to another residence have increased from 17 percent in September to 21 percent now, the highest number we have recorded in the eight polls when we have asked these questions (however Harris does not know their reasons for any planned moves);
- Those who expect to buy a new car, truck or van (14 percent) have increased from 12 percent last September; and,
- Those who expect to buy a boat or an RV have increased from three percent last May and six percent last September to seven percent.
