Rising home prices, combined with a slight improvement in real wages, have led Deloitte to post an increase in its Consumer Spending Index in July for the first time since January.
The index keeps tabs on consumer cash flow as a way to indicate future consumer spending. It includes four components: tax burden, initial unemployment claims, real wages, and real home prices. According to the firm, the four factors led to an increase to 2.53 in the Deloitte Consumer Spending Index in July, compared to 2.49 in June.
In terms of the tax burden component of the index, Deloitte noted that an increasing tax burden is often a sign of an improving economy. The tax burden rose to 10.7 percent of personal income in July from 9.6 percent a year ago. However, it is unchanged from June.
In terms of initial unemployment claims, after going below the 400,000 mark from October to March, claims increased sharply and put the economic recovery at risk. Claims improved in July, Deloitte noted, but remain above the 400,000 level on a monthly basis, rising to 427,750 in July, up from a low of 389,250 in February.
Meanwhile, real wage growth rose slightly in July as a result of declining energy prices. Wages increased 0.2 percent but were down 2 percent compared to a year ago.
Home prices rose nearly 7 percent in July, Deloitte noted, but were only up 3.6 percent from a year ago. Nevertheless, home prices have stabilized and are slowly moving back up in some parts of the country. The rebound in home prices has also pushed a previously significant growth barrier away from the consumer, Deloitte noted.
“The housing market is showing multiple signs of stabilizing and that is helping to ease a significant drag on consumer spending,” said Deloitte chief economist Carl Steidtmann, who compiles the monthly index. “A decline in energy prices drove an increase in real wages, perhaps giving consumers more money to spend and restoring confidence despite a weak labor market and the recent debt ceiling debate.”
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