Consumer Spending Down On Housing Market

Consumer Spending Down On Housing Market

By Mike Sachoff – Tue, 08/17/2010 – 5:07pm.

Uneven economic growth slows spending

The Deloitte Consumer Spending Index had it s its third straight month of decline in July, due in large part to weakness in the housing market.

“Real home prices had briefly picked up due to demand fueled by tax credits for home buyers, but prices have resumed their downward trend following the expiration of those credits and the housing market is now the biggest drag on the Index,” said Carl Steidtmann, chief economist with Deloitte Research, a part of Deloitte Services LP, and author of the monthly Index.

“Looking at other components of the Index in July, we see that tax rates, which had declined sharply during the recession, have basically held steady since the start of this year.  Real earnings ticked up slightly, following five consecutive declines,” said Steidtmann.

The index, made up of four components, tax burden, initial unemployment claims, real wages and real home prices, feel to 4.45 percent, from an upwardly revised gain of 4.63 percent a month ago.

“American households continue to be cautious about spending while economic growth continues to be uneven,” said Alison Paul, vice chairman and Deloitte’s retail leader in the United States.

“At the same time, consumers economized over the past two years and likely have pent up demand for goods they have foregone.  Retailers should consider strategies to stay nimble amid shifts in consumer behavior in the months ahead.  Customer data and business analytics may be particularly valuable for retailers to hone pricing, merchandise and promotions that attract their target consumers.”

Highlights of the index include:

*Initial unemployment claims fell for the seventh consecutive month, but the year-over-year declines are lessening. Unemployment claims peaked in the spring of 2009. While claims are still high, they are down nearly a third from their peak.

*Real home prices have fallen for two consecutive months.  Home buying activity has declined in recent months due to the ending of the tax credit.  Prices are likely to remain depressed for a while longer until demand strengthens again.

*The consumer’s tax burden declined sharply through most of the recession.  In 2010, however, the rate has held steady, although it continues to be down from year-ago levels.

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