Deloitte: Consumer spending on the rise

Declining energy prices and stabilization in the housing market drove an increase in consumer spending for July, according to data tracked by global consulting firm Deloitte LLP

Declining energy prices and stabilization in the housing market drove an increase in consumer spending for July, according to data tracked by global consulting firm Deloitte LLP.

The firm said its Consumer Spending Index (CSI) rose in July, which is the first time the CSI posted an increase since January of this year, Deloitte noted.

“The housing market is showing multiple signs of stabilizing and that is helping to ease a significant drag on consumer spending,” explained Carl Steidtmann, Deloitte’s chief economist. “A decline in energy prices drove an increase in real wages, perhaps giving consumers more money to spend and restoring confidence despite a weak labor market and the recent debt ceiling debate.”

Deloitte’s CSI, which is comprised of four components – tax burden, initial unemployment claims, real wages, and real home prices – rose to 2.53 from a reading of 2.49 in June. Highlights include:

  • Tax burden: An increasing tax burden is often the sign of an improving economy and the tax burden is up to 10.7% of personal income from 9.6% a year ago. However, it is unchanged from the previous month.
  • Initial unemployment claims: After breaking below the 400,000 barrier from October to March, claims have increased sharply and put the economic recovery at risk. Claims are improving but remain above the 400,000 level on a monthly basis, escalating to 427,750 in July, up from a low of 389,250 in February.
  • Real wages: Real wage growth rose slightly in July due to falling energy prices. Wages are up 0.2% but are down 2% from a year ago.
  • Real home prices: Home prices are up nearly 7% in July, but just 3.6% from one year ago. Prices have stabilized and are slowly moving back up in some locations. The rebound in home prices pushes a previously significant growth barrier away from the consumer.
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