News

Report: Falling home prices, rising energy costs weigh on consumer purchasing power

April 19, 2011

The Deloitte Consumer Spending Index tumbled in March due to a drop in real home prices and a decline in real wages driven by rising energy prices. The Index tracks consumer cash flow as an indicator of future consumer spending.

“Inflation anxiety may continue to wear at consumer confidence in the months ahead,” said Carl Steidtmann, Deloitte’s chief economist and author of the monthly Index. “Despite the recovery, consumers continue to save at a relatively high level, suggesting that consumers have the means to spend -- but not the will.”

The Index, which is comprised of four components — tax burden, initial unemployment claims, real wages and real home prices — fell to 3.62 percent, from an upwardly revised gain of 4.07 percent a month ago.

Highlights of the Index include:

Tax Burden: While the tax burden is up from a year ago, which is typically a sign of an improving economy; there was little change in the most recent report.

Initial Unemployment Claims: After being stuck for a year in the 425,000 to 475,000 range, initial unemployment claims have broken below the 400,000 barrier.  Simultaneously, the private sector showed the fastest employment growth in five years in February and March. When claims fell below 400,000 in previous recoveries, job growth showed a significant pick up.

Real Wages: Real wage growth slowed sharply in the most recent month and is being held down in part by rising energy prices. 

Real Home Prices:  Inflation-adjusted prices for new homes were down sharply from a year ago.  Putting downward pressure on prices is the growing glut of foreclosed homes coupled with mortgage financing that remains difficult to obtain.