Downturn in spending pronounced

MMR, June 23, 2008

NEW YORK -- With unemployment on the rise and housing prices continuing to tumble, consumer spending is plummeting, according to Deloitte Research. In March the Deloitte Research Leading Index of Consumer Spending reached its lowest level since 2001 as home prices fell nearly 12% while unemployment claims rose 9.8%.

"This significant drop in the index gives us empirical data of what many have long suspected," says Carl Steidtmann, chief economist for Deloitte Research and author of the monthly index. "The current economic downturn is as significant as anything we have seen since the last recession."

The index, which consists of four components--tax burden, initial unemployment claims, real wages and real home prices--slid to 1.3% in March from a revised gain of 1.5% in February.

The only positive sign for consumer spending in the index is the declining tax burden as income growth slows. Initial unemployment claims surged 16.1% year over year in March, while real wage growth was slightly negative. The home market, moreover, shows no sign of bottoming out yet.

"With federal income tax rebate checks now hitting consumers' pocketbooks, retailers are aggressively courting consumers to get their share of those dollars," says Stacy Janiak, United States retail sector leader at Deloitte. "Retailers are expected to offer substantive incentives for rebate check usage and find creative ways to merchandise and attract the consumer, who is increasingly focused on buying just the basics."