Falling home prices leads to weak spending

NEW YORK The Deloitte Research Leading Index of Consumer Spending fell this month, forecasting a weak spending outlook, primarily due to continued falling home prices.

"The housing market is beginning to have a substantial impact on consumer spending," says Carl Steidtmann, chief economist with Deloitte Services LP's Deloitte Research and author of the monthly index. "Large amounts of housing inventory continue to exert downward pressure on home prices, creating a negative 'wealth effect' among consumers. In addition, with mortgage rates rising and refinancing money drying up, more of consumers' money is going to mortgage payments, with less left over for discretionary spending. Partially countering the housing impact, the growth in the tax burden on households has slowed, the labor market is robust and real wages continue to be strong."

The index, comprising four components - tax burden, initial unemployment claims, real wages and real home prices - fell to 2.67%, from an upwardly revised gain of 3.08% a month ago.

"With back-to-school in full swing and the holiday season just around the corner, retailers need to assess their strategies," says Stacy Janiak, Deloitte's U.S. retail leader. "Retailers should take a cautious approach to inventories and staffing, while focusing on excelling at customer service and converting shoppers into buyers."