Natural, unnatural causes for December spending index drop


ChartConsumer spending hit a slump during the final month of 2012 after rising steadily most of the year, says Deloitte LLP. One cause was natural: Hurricane Sandy, and the other was anything but: Our representatives in Washington playing politics on the edge of the fiscal cliff.

The Deloitte Consumer Spending Index takes into account tax burden, initial unemployment claims, real wages and real home prices. It stood at 3.96 in November 2012 but fell to 3.81 in December.

“The decrease in the Index this month is primarily due to Hurricane Sandy—which induced jobless claims, though that effect appears to have passed,” said Alison Paul, vice chairman, Deloitte LLP and retail & distribution sector leader.  “On the plus side, consumers benefited from falling gasoline prices through the last quarter, which helped temper declining real wages.  However, the fiscal cliff debate appears to have impacted consumer confidence late in the year, compounding the adjustment to new tax rates — all of these factors may lead to more conservative spending in the months ahead.”

Paul added, “Faced with a more selective consumer, retailers are likely to experiment with creative marketing, in other words, trying new approaches with social media and shifting spend to their mobile strategy, to differentiate themselves. Whether it’s a new shopping app or sales strategy, promotions should both reflect their individual brand identify while offering distinctive value to the shopper.  We are already seeing many ‘price matching’ experiments launched during the holidays being extended into the new year – an effort to keep customers coming back.”

Jobless claims surged during December, and that was a prime downward driver on the Index. The good news is that it was a direct effect of Hurricane Sandy and not an indicator of newfound general weakness in the economy.

Real wages are continuing to slide, but the fall in the price of gas helped slow the deceleration somewhat. Meanwhile, housing prices are improving.

RBR-TVBR observation: As close observers of confidence measures, we have become accustomed to a general beginning-of-the-year pattern: A burst of confidence that withers sometime around March or April as consumers come to the glum realization that it’s just going to be business as usual in Washington, and by that we mean welcome to Gridlock Land.

However, 2012 was unique among the years since the Fall 2008 meltdown in that a pattern of slow but steady growth was evident in most of the surveys we follow.

Perhaps this will be the year in which consumers start out with a burst of realism, and gradually come around to a positive view as time goes on.

But of course, that is pure speculation – we’ll be watching with interest to see what really happens…