As economic conditions trend downward, consumer purchasing appears to be at an important turning point, the Deloitte Research Leading Index of Consumer Spending has found.
"The Index turned from positive to negative in real growth terms in January, indicating a much tougher environment for retailers in the months ahead," says Carl Steidtmann, chief economist with Deloitte Research and author of the monthly index.
The Deloitte Research Leading Index of Consumer Spending tracks consumer cash flow as an indicator of future consumer spending. The index comprises four components – tax burden, initial unemployment claims, real wages and real home prices – that fell in January 2008 to 1.47 percent from a revised gain of 1.91 percent a month ago.
This was the fourth consecutive fall in the index after September 2007, suggesting that consumer spending may be nearing a turning point. Year-over- year growth in personal consumption expenditure (three-month moving averages) has been in continuous decline after October 2007.
"Falling home prices have pulled the index value down by nearly 1 percent this month," says Steidtmann. "Additionally, a drop in real hourly earnings, due to food and energy inflation, was the second major factor pushing the index south. Rising unemployment remains the biggest risk to consumption expenditure in the months ahead."
"With the Leading Index now declining, the outlook for retailing is worrisome," says Stacy Janiak, vice chairman and
Highlights of the index, which tracks consumer cash flow as an indicator of future consumer spending, include:
– Tax Burden: The tax burden fell to 2.6 percent on a year-on-year basis
in January. Falling tax rates are the only factor preventing a greater
fall in the index.
– Initial Unemployment Claims: The year-over-year growth rate in
unemployment claims was higher in January compared to the previous
month. The deterioration of the labor market has spread beyond
construction and manufacturing and into services.
– Real Wages: Real wage growth rate fell sharply below zero in January
2008. Rising energy prices are taking a serious toll on real wages.
– Real Home Prices: House prices remain the weakest link in consumer
spending. Prices fell by 10.5 percent in January. Elsewhere, data
showed no signs of a bottoming out in the housing market with falling
sales of new as well as existing houses.
For more information about Deloitte's Retail group, please visit www.deloitte.com/us/retail.
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