Deloitte consumer spending index up for fourth consecutive month

NEW YORK The Deloitte Consumer Spending Index rose again in September, hitting its highest level in two years. The index attempts to track consumer cash flow as an indicator of future consumer spending.

"The fundamentals of consumer spending continue to improve, giving households increased purchasing power," said Carl Steidtmann, chief economist with Deloitte Research, a subsidiary of Deloitte Services LP, and author of the monthly index. "The housing market is beginning to show signs of stabilizing while initial unemployment claims have fallen significantly. Household net worth is rising and real wages are climbing at their fastest pace in 40 years. Signs of recovery got a boost from the cash for clunkers program in August, plus a gain in real spending has materialized across the board in recent months."

Highlights of the index include:

• Tax Burden: The tax burden continues to fall with the weakening of the economy. The tax burden is at a level only seen on a few occasions over the past 50 years during brief periods following tax rebates. Continued decline is expected.
• Initial Unemployment Claims: Initial unemployment claims have come down sharply over the past three months which historically has been a reliable signal of economic recovery. Claims are down more than 100,000 from their recession peak.
• Real Wages: Real wage growth continues to post solid gains due in large part to falling prices. Real wages are up 4.8 percent from a year ago as falling prices have given a big boost to consumer purchasing power.
• Real Home Prices: The pace of decline in home prices has slowed significantly on a year over year basis. Continued efforts to forestall foreclosures coupled with a tax credit for first-time home buyers have brought some stability to the housing market. The decline in home prices has made home buying much more affordable.

"The Index suggests that many households increasingly have the means to spend, and with the worst of the downturn seemingly behind us, the retail environment may soon see signs of life," said Stacy Janiak, vice chairman and Deloitte's U.S. retail leader. "Retailers have tackled cost cutting and cash conservation and the next few months will likely be all about enticing the consumer to spend. Offering personalized marketing, enhancing in-store customer conversion tactics and encouraging online product reviews are just a few of the ways that retailers may be able to gain an edge this holiday season."

For more information about Deloitte's retail sector, please visit www.deloitte.com/us/retail.