Energy Price Inflation Dampens Consumer Spending – Update
Following six straight months of growth, the Deloitte Consumer Spending Index dropped slightly in December 2009 due to the impact of rising energy prices on real consumer wages. The Index dropped 0.6%, from an adjusted score of 4.66% in November 2009 (which marked a five-year high) to 4.63%.
The Index, which attempts to track consumer cash flow as an indicator of future consumer spending, is still near its five-year high and is well above its recent low point of 3.07% in October 2007.
Four components comprise the Consumer Price Index - tax burden, initial unemployment claims, real wages and real home prices. Following is a brief overview of Deloitte’s analysis of each component.
Tax burden – The tax burden, after stabilizing, is again moving lower. The average tax burden is at its lowest level in more than 40 years due to the effects of the stimulus bill passed in February 2009.
Initial unemployment claims – Initial claims have come down sharply over the past six months, which historically has been a reliable signal of economic recovery. Claims are down more than 200,000 from their recession peak and are down from a year ago.
Real wages - Real wage growth, which had been the biggest contributor to the Index in recent months, is beginning to slip as energy prices are pushing up the price level and hurting the real purchasing power of modest wage growth.
Real Home Prices - The pace of decline in home prices continues to slow on a year-over-year basis. Government efforts to forestall foreclosures, coupled with the extension and expansion of the tax credit for home buyers, have brought some stability to home prices. The decline in home prices has made home buying much more affordable.
Stacy Janiak, vice chairman and U.S. retail leader of Deloitte, said inflation can have a significant impact on the retail pricing environment. “Retailers that have been focused on lowering product costs and preserving margins should keep their foot on the pedal to maintain and accelerate those efforts given the prospect for continued inflationary pressure,” said Janiak.
Holiday Sales Improve
Two recent reports on 2009 holiday sales performance are at odds with Deloitte’s finding that consumer spending decreased in December 2009. According to the Weekly Chain Store Sales Snapshot compiled by the International Council of Shopping Centers (ICSC) and Goldman-Sachs, chain store sales grew 2.8% during December 2009.
In addition, digital marketing firm comScore reports that during the 63-day holiday shopping period between November 1 and December 31, 2009, U.S. consumers spent $29.1 billion online. This marked a 4% increase from $27.9 billion U.S. consumers spent online during the equivalent period in 2008.
While comScore’s research tracks November as well as December 2009, the firm also reported that December 19-20, 2009, featured a strong 13% growth rate as online sales rose from $677 million during the final weekend before Christmas 2008 to $767 million. Other strong e-commerce sales figures from December include a year-over-year e-commerce sales growth rate of 6% for the full week ending December 20, 2009, as it grew from $4.5 billion to a one-week sales record of roughly $4.8 billion in online spending. Tuesday, December 15, 2009 set an all-time single-day record for e-commerce sales with $913 million, and each day from Monday, December 14 through Thursday December 17 saw at least $800 million in online spending.