Prospects for consumer spending on the upswing


ChartThe Deloitte Consumer Spending Index for October experienced a positive surge due to an increase in one area and a decrease in another – however, future potentialities could inject downward pressure and undo the benefits.

The index stood at 3.54 in September, and mushroomed to 4.02 for October.

“The housing market appears to be recovering after bottoming out, while energy prices have begun to recede and lift some of the pressure on wages, boosting confidence and consumers’ willingness to spend,” said Carl Steidtmann, Deloitte’s chief economist and author of the monthly Index. “This may only be sustainable over the long term if legislative issues are resolved, including the fiscal cliff and debt ceiling, as consumers will start to see their first tax increases at the beginning of the year.”

It all bodes well for the holiday shopping season. “Rising consumer confidence should give retailers reason to celebrate during the holiday season, but the winds may shift in January, which should encourage retailers to make the most of this good news now,” said Alison Paul, vice chairman, Deloitte LLP and retail & distribution sector leader. “The consumers who appear most optimistic about their holiday spending are those who have been coined ‘omnichannel’ shoppers, or those who use all channels to shop, including mobile phones, online and the store.   These consumers plan to spend 71 percent more on gifts than those who  shop only in stores, according to Deloitte’s annual holiday survey. We also found that nearly half (45 percent) of consumers plan to shop online.  These spending intentions give retailers reason to interact with consumers across physical and virtual storefronts to augment their messages and sales this holiday season.”

The beneficial indicators were mitigated somewhat by a slightly higher tax burden, slightly lower real wages and a slight uptick in jobless claims.

RBR-TVBR observation: There is likely a lot of pent-up demand for big ticket items out there. In our humble opinion, consumer spending is the premier building block of a strong economy, but it requires employment stability, expendable income and credit availability. If these elements all reach a positive tipping point, it could help rebuild the economy at a faster pace than some have predicted, as increased demand leads to investment to meet increased demand, which leads to further employment and more spending – the positives feed on themselves and everybody wins. We believe when that happens, that is when the economy will become truly robust once again.