Consumer Spending Index Falls for 3rd Month – Update
The Deloitte Consumer Spending Index declined in July 2010 for the third consecutive month, once again due to weakness in the housing market. This three-month slide follows a two-month string of gains caused by an improving U.S. employment picture.
The Index, which attempts to track consumer cash flow as an indicator of future consumer spending, dropped from an upwardly revised score of 4.63% in June 2010 to 4.45% in July 2010, a 3.9% decline. This reflects a moderate improvement from the declines of the previous two months. In June 2010, the index fell from its May reading of 4.93%, a 6% drop. In May 2010, the Index fell from 5.15%, a 4.3% drop.
In contrast, in April 2010, the Index rose from a revised score of 4.64%, a healthy 11.1% increase. The previous month, the Index rose an also impressive 10.21%, from a score of 4.21%.
Despite its third straight decline in July 2010, the Index still remains at one of its highest levels in the past six years. Real hourly earnings, after experiencing growth in 2009, deteriorated for the first six months of 2010 but ticked upward in July. The main negative contributor appears in real home prices, which resumed their downward trend in May 2010 after a short, two-month upward climb spurred by tax credits which have since expired.
Tax rates, which had declined sharply during the recession, have basically held steady since the start of this year.
Alison Paul, vice chairman and Deloitte’s retail leader in the US, said American households continue to be cautious about spending while economic growth follows an uneven pattern. “Consumers economized during the past two years and likely have pent up demand for goods they have foregone,” said Paul. “Retailers should consider strategies to stay nimble amid shifts in consumer behavior in the months ahead. Customer data and business analytics may be particularly valuable for retailers to hone pricing, merchandise and promotions that attract their target consumers.”
Employment Gains May Soften
The Index comprises four components ― tax burden, initial unemployment claims, real wages and real home prices.
Initial Unemployment Claims: Initial unemployment claims fell for the seventh consecutive month, although the year-over-year declines are lessening. Unemployment claims peaked in the spring of 2009. While claims are still elevated, they are down nearly a third from their peak.
Real Wages: Real wages moved back into positive territory following five consecutive declines. The upturn, however, was slight. The recent weakness in employment and hours worked are unfavorable developments for U.S. households.
Real Home Prices: Real home prices have fallen for two consecutive months. Home buying activity has declined in recent months due to the ending of the tax credit. Prices are likely to remain depressed for a while longer until demand strengthens again.
Tax Burden: The consumer’s tax burden declined sharply through most of the recession. In 2010, however, the rate has held steady, although it continues to be down from year-ago levels.
Unemployment Stays 9.5% Despite Census Job Losses
Overall, the official U.S. unemployment rate remained flat at 9.5% in July 2010. The U.S. economy shed 131,000 non-farm payroll jobs in July as federal government employment fell with 143,000 temporary workers hired for the decennial census completing their work. Private-sector payroll employment edged up by 71,000, however.
Similarly, the U.S. economy shed 125,000 non-farm payroll jobs in June 2010, reflecting the loss of 225,000 temporary Census jobs. Total private employment edged up during the month by 83,000 jobs due to modest increases in several industries.
Prior to June, the U.S. economy added 431,000 non-farm payroll jobs in May 2010. This marked a significant improvement from 290,000 non-farm payroll jobs added in April 2010, as well as 162,000 non-farm payroll jobs added in March 2010. In addition, 36,000 non-farm payroll jobs were lost in February 2010 and 20,000 lost in January 2010.
However, tempering this May increase in new jobs was the fact that 411,000 of them were temporary workers hired to assist the 2010 Census. Private-sector employment changed little (41,000 jobs added).