Consumer Spending Improves: Report

Consumer spending rose in February, driven by strong growth in real wages and a decline in energy prices, according to the Deloitte Consumer Spending Index released Wednesday, which attempts to track consumer cash flow as an indicator of future consumer spending. “Falling oil prices and reduced tax burdens are giving consumers the wherewithal to spend. What they are lacking is the will to do so,” said Carl Steidtmann, chief economist with Deloitte Research, a subsidiary of Deloitte Services LP, and author of the monthly Index. At the same time, he said, real inflation adjusted home prices are still down nearly 9 percent from a year ago, inflicting a “drag” on the Index. “[A] full recovery in consumer spending will likely have to wait for stabilization of the housing market.” The overall Index, comprising four components — tax burden, initial unemployment claims, real wages and real home prices — increased to 1.53 percent, from an upwardly revised gain of 1.27 percent a month ago. The tax burden continued to fall with the weakening of the economy. And the tax reduction that goes into effect in April is expected to further reduce the tax burden going forward, according to the report. Real wages continued to post strong growth, up 4.6 percent from a year ago. However, initial unemployment claims were dismal, rising again in the most recent month, up 72 percent from a year ago. As for the struggling home market, Deloitte Research said efforts to forestall foreclosures coupled with a tax credit for home buyers may bring some stability to the home market, providing a boost to the index. After all, the decline in home prices has made home buying much more affordable, but then again, mortgage financing is still lacking, the company explained. “Despite increasing purchasing power, consumers are still generally holding back. They do, however, seem to be breaking out of their winter doldrums by cautiously spending on items like spring clothing and certain electronics,” said Stacy Janiak, vice chairman and U.S. Retail leader, Deloitte LLP. Write to Kelly Curran at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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