Q4 outlook remains tough, says latest Deloitte Index
Projections of consumer spending this holiday season remain pessimistic. The latest Leading Index of Consumer Spending and “Outlook for the Holidays” from Deloitte Research shows a weakening in the consumer spending index, with higher taxes, gasoline and heating prices all holding down consumer spending.
“Consumers have done a heroic job in holding up their end of the economy over the past eight months, with real consumer spending rising by four percent, despite real wages declines, falling savings rates, slow employment growth, and a rising tax burden,” says Carl Steidtmann, chief economist of Deloitte Research and author of the monthly index. “Continued weakness in the index poses a challenging sales environment for retailers as they move into the all important holiday season.”
Deloitte adds that high inventories and moderated consumer demand will drive retailers to engage in more promotional pricing.
Highlights of the index include:
• General Merchandise, Apparel and Furniture (GAFO) sales will grow 4 to 4.5% for the holiday season.
• Personal income tax levels continue to rise slowly, with federal tax revenues for the first eleven months of the fiscal year up 13.7%.
• Initial unemployment claims increased in the wake of Hurricanes Katrina and Rita, but the trend will reverse as the rebuilding efforts begin. The loss of employment will temporarily depress household cash flow.
• Real hourly wages continue to decline due to rising energy and benefits costs, with the short-term deterioration in the labor market acting as a barrier to future real wage growth.
• Continued high-energy prices will harm consumer spending, particularly for lower income households.
• Real home prices continued to slide and are down from a year ago. Deloitte says the weakness in home prices is the biggest single factor in the slowdown in the Deloitte Index.
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