A study by Deloitte Touch, based on concerns that consumer spending may slowdown due to continued weakness in the housing market, not only alerts retailers to that potential, but also offers tactics for coping. This comes in the wake of the company's most recent index of consumer spending.
"With initial unemployment claims up in recent weeks, the labor market is showing some early signs of weakening, which could put pressure on consumer spending," says Carl Steidtmann, chief economist with Deloitte Services and author of the monthly index. "Home prices continue to be weak. However lower mortgage rates are giving a boost to mortgage applications and there are some signs that the housing market is stabilizing. The coming months will show how the labor and housing markets evolve and their combined affect on consumer spending."
The index, which is comprised of four components (tax burden, initial unemployment claims, real wages and real home prices) fell to 3.28 percent from an upwardly revised gain of 3.84 percent the month before. "In this environment, retailers also have a balancing act," says Pat Conroy, a vice chairman of Deloitte & Touche USA LLP and national managing principal of its consumer business industry practice. "They need to focus on the cost side of the business."
This includes making sure that inventories are not out of line and monitoring labor costs, Conroy advises. However, "Retailers must also ensure in-stock positions for the products their customers want to buy, match store staffing with shopper traffic, and improve selling behaviors in order to convert shoppers into buyers. These levers can exert opposing forces on a business or, done right, they can help maximize sales and earnings," he points out.
Highlights of the index, which tracks consumer cash flow as an indicator of future consumer spending, include:
- Tax Burden: Personal income tax burden continues to rise slowly and is up more than 1 percent of income from a year ago. The rise in tax burden has produced double digit rates of growth in government receipts at both the federal and local level.
- Initial Unemployment Claims: Claims are volatile, inching in either direction in recent weeks. Claims are being pushed up by rising layoffs in auto manufacturing and residential home construction. While claims are nowhere near the levels seen in past recessions, the rise in claims is a drag on the index.
- Real Wages: Continuing a rebound that started last fall, real wages were up 2.1 percent from a year ago. Lower energy prices in January accounted for much of the gain. Increases in the minimum wage should keep upward pressure on real wages over the near-term.
- Real Home Prices: Home prices are falling and are down about 4 percent from a year ago. The inventory of unsold new homes is also rising sharply. Mortgage rates have come down recently, giving a boost to mortgage applications. Existing home sales have picked up, but primarily as a result of price discounting by sellers. Since October 2006, the combination of new and existing home sales has risen slightly, suggesting that the housing market is stabilizing.
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