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Consumers Still Cautious About Spending

NEW YORK -- As the holiday season hits its stride, consumers are poised to spend, according to Deloitte's Consumer Spending Index released last week. The Index, which increased by 4.63 percent in November after a 4.25-point gain in October, represents the highest level the Index has reached since 2004.

The Index -- which tracks consumer cash flow in sectors including tax burden, initial unemployment claims, real wages and real home prices to predict future spending -- represents what buying behaviors retailers can expect over the next four to six months.

According to Carl Steidtmann, chief economist with Deloitte Research, the Index has been dramatically increasing in a V-shaped recovery since Jan 1. "What it means is that consumers have the means to spend at a significantly higher level than they are currently spending at …Cash flow, and the factors that affect cash flow, have improved and continue to improve."

He added, "I think consumers are still quite shell-shocked. There's also a very high level of uncertainty about a host of different factors from healthcare to energy to the stability of the banks that are all undermining people's confidence."

Separately, the "Holiday Shopping Survey" also released this week by Discover Card confirms that consumers are reticent about spending. Forty-three percent of consumers plan to spend less this season compared to prior years, with the average consumer planning to spend only $723 total on gifts (down from $831 and $896 in 2007 and 2006, respectively). Additionally, 63 percent reported plans to spend within their holiday budget.

Steidtmann said a flat holiday season had been expected, but that the low spending should not put a damper on retailers' outlooks. "I think there's every reason for retailers to be optimistic. As the economy slowly gain momentum, some of that uncertainty will begin to fade, and we'll begin to see some real job growth and that's something that will make the recovery self-reinforcing."
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