Deloitte consumer spending index turns negative for the first time since 1980

Consumer spending fell into negative territory for the first time in over 25 years, according to one index.

Deloitte said its Research Leading Index of Consumer Spending produced a negative reading in October due to substantial increases in unemployment and continued softness in the housing market.

The Index attempts to track consumer cash flow as an indicator of future consumer spending.

Carl Steidtmann, chief economist with Deloitte Research, author of the monthly Index, said: ‘The deterioration in the labor market is also a key concern, with initial unemployment claims rising sharply in October. On the positive side, real wage gains got a boost this month from a fall in energy prices, and energy prices continue to go lower.’

The Index fell to -0.10 percent from a revised gain of 0.54 percent a month ago.

This is the first time the Index has produced a negative reading since October 1980. In the past three months, the Index has fallen 1.75 %, the sharpest deceleration in the Index since October 1990.

‘Given the credit crunch and the impact it's having, retailers need a strong focus on cash flow management this holiday season,’ said Stacy Janiak, vice chairman and US Retail leader, Deloitte LLP. ‘At the same time, it's important to have a strategy and stick with it. While it's tempting to match or beat competitors' aggressive promotions, that approach can exact a heavy toll on profits. Retailers should be very strategic in making changes to their planned holiday promotions to limit the adverse margin impact as much as possible. Cost containment and labour management should also remain top of mind.’

Highlights of the Index include:

Tax Burden: The tax burden continues to fall with the weakening of the economy.

Initial Unemployment Claims: Claims shot up in the most recent month and are now up 51 percent from a year ago.
Real Wages: Real wage growth rebounded in the most recent month due to falling energy prices. However, real wages are still down 2 percent from a year ago.

Real Home Prices: House prices fell by 13.4 percent in October. Home mortgage refinancing has all but disappeared, reducing household cash flow. Inventories of unsold homes, while down slightly, are still high. A contraction in mortgage credit is limiting home buying. Until home prices stabilize, housing will remain a major drag on consumer spending.