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Consumer Spending Drops, Economic Growth Slows"
NEW YORK -- Consumer spending declined sharply in May, with declining real wages, waning tax cuts and falling home prices contributed to the slower growth, according to Deloitte Research's leading index of consumer spending."Reduced housing-related sales and the decline in real wages will produce a slow down in spending by middle-income households," said Carl Steidtmann, chief economist for Deloitte Research. "However, luxury goods retailers should expect better sales from higher income households due to a rise in profit growth and interest income. This polarization in income growth will favor high end retailers."Highlights of the index, which tracks consumer cash flow as an indicator of future consumer spending, include:Payroll employment in the first half of 2004 rose by more than 1.2 million as the pace of layoffs slowed. The improvement in the labor market was demonstrated in improved consumer confidence as well.Initial unemployment claims are down 20% from a year ago, showing steady improvement in the job market.A boost in inflation and rising energy prices has undermined consumer purchasing power.Consumer income was revised up modestly, going back to January 2004, resulting in a higher rate of consumer saving.Real wage gains are being undermined by an acceleration of inflation and hefty health benefit costs.Real home prices fell sharply in May from the previous month and account for significant slippage in the index.The uptick in the tax rate is synonymous with an improving incomes and a stronger economy.The index is comprised of four components -- tax burden, initial unemployment claims, real wages and real home prices. The sharp decline in the index points to a deceleration in consumer spending growth in the months ahead.Deloitte provides audit, tax, financial advisory services and consulting through nearly 30,000 people in more than 80 U.S. cities.Visit Deloitte at www.deloitte.com/us "