Despite April's Tax Increase, Consumer Spending Holds Steady, Says Deloitte

5/20/2013
The Deloitte Consumer Spending Index dipped slightly in April, primarily due to an increase in the tax rate, while other economic fundamentals remain steady.  The Index tracks consumer cash flow as an indicator of future consumer spending[i].

"Despite a minor backslide in April, the Index has remained stable over the past six months, staying at a level that typically indicates sustained consumer spending in the near term," said Daniel Bachman, senior U.S. economist, Deloitte Services LP.  "The employment picture continues to improve gradually, with revisions in the last two months reflecting stronger growth than initially reported.  The retail sector – the largest private sector employer – added 29,000 jobs in April, bolstering confidence in the industry and the broader economy, even as the effects of the sequester and tax increases continue to impact consumers."

The Index, which comprises four components — tax burden, initial unemployment claims, real wages and real home prices — fell slightly this month to 3.98 from a reading of 4.4 the previous month. 

"The question at the top of retailers' minds is whether the economy will limp along or accelerate during the second half of the year," said Alison Paul, vice chairman, Deloitte LLP and retail & distribution sector leader.  "While retailers try to get consumers to warm up to summer merchandise after a cool spring, they are also in the thick of holiday planning and inventory orders. 

"Long term, they should be prepared for continued consumer resilience, but stay vigilant should a skittish consumer return when the debt ceiling debate resumes," she added. "Retailers should consider how to most effectively use their stores in combination with mobile and dot com to win in the omnichannel game. The retailers who plan for scenarios where merchandise is offered both online and in-store while also responding to inventory levels and weather trends with nimble pricing will likely see fewer markdowns and more full-price sales."

Highlights of the Index include:
  • Tax Burden: The tax burden ticked up slightly from the previous month, but is up 2.1 percent from the same period last year.
  • Initial Unemployment Claims: Claims continued to head downward, to 352,000, from 355,750 the previous month.
  • Real Wages: Hourly real wages remained relatively steady at $8.75. 
  • Real New Home Prices: Real new home prices in March were $106,310, up 1.5 percent from this time last year, though down from the previous month.
X
This ad will auto-close in 10 seconds