Deloitte: Consumer Spending Index Slips

By Rob Starr, Content Manager, Big4.com

The Deloitte Consumer Spending Index (Index) decreased slightly in July marking the first decline since February 2012. The Index, which comprises four components — tax burden, initial unemployment claims, real wages and real home prices — fell to 3.25 from an upwardly revised reading of 3.27 the previous month.

The big change this month was a reversal in the improvement in new home prices, which are down 4.77 percent from a year ago.Alison Paul, vice chairman, Deloitte LLP and retail & distribution sector leader comments:

“Consumers responded favorably to markdowns and promotions in July, and we anticipate retailers will finish the summer strong as families restock before sending their children off to school,” she said.  “However, that momentum may be seasonal and temporary if the Index’s decline is more than a blip on the radar.  If concerned consumers decide to tighten their purse strings, retailers may not feel the impact until the beginning of the holiday season.  Since retailers placed their holiday orders early in the year, they should map out scenarios that will help them navigate shifts up or down in consumer demand, and quickly adjust pricing, inventory and promotional strategies accordingly this fall.”

In the past two months the savings rate has increased from 3.6 percent to 4.4 percent.  While a rising savings rate is a long-term positive, in the short run it takes away from consumer spending. This can also be interpreted as a sign of growing consumer caution.  Historically, a rise in savings has been more of a negative for auto sales than for store-based retailers.  Auto sales have been partly responsible the weakness in monthly retail sales numbers from the Commerce Department.