The Deloitte Consumer Spending Index fell 6.6% in September 2010 compared with August 2010, due to what Deloitte identifies as a climbing tax burden and continued weakness in the housing market.. The Index attempts to track consumer cash flow as an indicator of future consumer spending.
The Index, comprising four components: tax burden, initial unemployment claims, real wages and real home prices, fell from a revised 4.8% in August 2010 to 4.5% in September 2010. The Index previously stayed flat in August, following three straight months of declines.
In contrast, in April 2010, the Index rose from a revised score of 4.64% to 5.15%, a healthy 11.1% increase. The previous month, the Index rose an also impressive 10.2%, from a score of 4.21%.
Despite recent stagnant results, the Index still remains at one of its highest levels in the past six years. Alison Paul, vice chairman and Deloitte’s retail leader in the US, said consumers remain discerning shoppers, but have been delaying purchases for a while. “Retailers can capitalize on any pent-up demand by delivering a compelling merchandise and value message to entice the consumer who is ready to replenish or even splurge this holiday season,” said Paul.
Tax Burden Increases, Remains Low
Looking in more detail at the four main components of the Index, the still-low tax burden has started rising while foreclosures stagnate housing prices:
Tax Burden: The tax burden is moving up slowly. The average tax burden has moved off its lowest level in 40 years, and while still low by historical comparisons, is clearly headed higher..
Initial Unemployment Claims: Claims ticked up in the most recent month. Claims have been stuck in a narrow range for nearly a year.
Real Wages: Real wage growth, which had been the biggest contributor to the Index, has seen slower growth from a year ago as high unemployment keeps a lid on wages, while energy prices are pushing up the price level and hurting the real purchasing power of modest wage growth.
Real Home Prices: The housing market deteriorated in the most recent month, as the effects from the expiration of the home buyer credit take hold. Mortgage applications are down, sales activity is slow. Home foreclosures are still very high, creating a lot of excess supply which is depressing prices.
Deloitte Predicts Modest Holiday Sales Increase
Several dampening economic factors should keep 2010 holiday sales in check, according to a new prediction from Deloitte. Deloitte is forecasting retail sales for the November 2010 – January 2011 holiday season will total $852 billion, a 2% increase from about $835 billion in the same period last year (excluding motor vehicles and gasoline). This represents a slight improvement from the 1% bump in holiday sales between 2009 and 2010.
Non-store retailing is expected to serve as the primary driver for this year’s improvement in holiday sales. In particular, Deloitte forecasts the e-commerce segment of non-store retailing to rise 15% this holiday season. Nearly two-thirds of non-store sales are from the online channel, with the remainder coming from catalogs and interactive TV.
