Deloitte: Consumer Spending Index Retreats

By Rob Starr, Content Manager, Big4.com

After nearly a year of steady gains, the Deloitte Consumer Spending Index (Index) fell in November due to a slowdown in the rise of new home prices and an accelerating decline in real wages. The Index tracks consumer cash flow as an indicator of future consumer spending . Relevant factors include the fact that significant downward revisions in both new home sales and income data were published this month. The new home sales data shows sales began to flatten out in February. The increased building activity in recent months may increase the market inventory rather than reflect homes sold, and may result in a pullback in building next year. The inventory issue is now putting downward pressure on home prices.

As well, incomes were revised down sharply for the past six months. Real disposable income in October is $20 billion below May levels. Like housing, incomes had a nice run-up in the early months of the year but now appear to have stagnated since the end of spring.

The Index, which comprises four components — tax burden, initial unemployment claims, real wages and real home prices — fell sharply this month to 3.89 from a reading of 4.14 the previous month. The Index reflects data through October but does not yet reflect the complete impact of Hurricane Sandy.