Consumers Take Cover as U.S. Home Market Crashes

A leading index tracking future consumer spending suggested Friday that more pain lie ahead for the nation’s battered economy and its badly-beaten housing market, the latest evidence of a vicious cycle now pulling down on consumers. The Deloitte Research Leading Index of Consumer Spending fell into negative territory in October for the first time in nearly three decades, primarily due to substantial increases in unemployment claims and continued softness in the housing market, analysts suggested. The index attempts to track consumer cash flow as an indicator of future consumer spending. “While home prices declined at a slower rate during the summer, fall has seen the pace pick up again. Home prices are now down over 13 percent in real terms from a year ago, and they are the biggest drag on the index and on consumer spending,” said Carl Steidtmann, chief economist with Deloitte Research, a subsidiary of Deloitte Services LP, and author of the monthly Index. “The deterioration in the labor market is also a key concern, with initial unemployment claims rising sharply in October. On the positive side, real wage gains got a boost this month from a fall in energy prices, and energy prices continue to go lower.” The index, comprising four components — tax burden, initial unemployment claims, real wages and real home prices — fell to -0.10 percent, from a revised gain of 0.54 percent a month ago. The negative result was the index’s first since Oct. 1980; and in the past three months, the index has fallen 1.75 percent, the sharpest deceleration since Oct. 1990. “Given the credit crunch and the impact it’s having, retailers need a strong focus on cash flow management this holiday season,” said Stacy Janiak, vice chairman and U.S. retail leader at Deloitte. (We think that’s another way of saying retailers need to focus on simply not going bankrupt.) Problems go well beyond housing, of course — unemployment is up 51 percent from year-ago levels, and real wages are down 2 percent in the same time frame, the report noted — but it’s clear that housing’s drag on consumer spending will make this holiday far less merry than years’ past. Write to Paul Jackson at [email protected].