Consumer spending continues to be stuck in the mud, according to the Deloitte Consumer Spending Index. The Index, which tracks consumer cash flow as an indicator of future consumer outlays,declined again in January for the third consecutive month.
“The Index is down primarily due to slowing increases of new home prices,” said Patricia Buckley, director, economic policy and analysis, Deloitte LLP, and author of the monthly Index. “Looking ahead, gradual improvements in initial unemployment claims and real wages may help the Index reverse its course. In the near term however, spending may remain constrained as consumers contend with tax hikes and rising prices at the pump.”
The Index, which is made up of four components -- tax burden, initial unemployment claims, real wages and real home prices -- fell to 3.87 from a reading of 3.93 in December.
“Shoppers are taking their annual post-holiday pause and may slow their spending even more as they adjust to higher payroll taxes,” said Alison Paul, vice chairman, Deloitte LLP and retail & distribution leader. “The hit to consumers’ paychecks is likely to be more pronounced among lower- and middle-income Americans who may put household necessities on hold, not just discretionary items.”
Paul suggests retailers hone in on price sensitivity, basket size, and traffic data using analytics to respond quickly with appropriate pricing, assortment and promotions rather than lose a shopper to a more competitive retailer.
The component performance
- Tax burden: The tax burden fell slightly over the past two months and is just below 11 percent.
- Initial unemployment claims: After rising in November to 405,750 due to Hurricane Sandy, jobless claims fell 11 percent in December to 361,400. On a year-over-year basis, unemployment claims remained relatively unchanged.
- Real wages: With inflation in check, hourly real wages have risen over the past two months to $8.76.
- Real home prices: Home prices continue to rise and are up 12 percent over a year ago, though the pace of increases is slowing.