The Deloitte Consumer Spending Index (Index) climbed higher in March, marking only the third monthly increase over the past 12 months.  The Index tracks consumer cash flow as an indicator of future consumer spending.

"The Index turned upward as the pace of declining new home prices slowed," explained Carl Steidtmann, Deloitte's chief economist and author of the monthly Index.  "Despite this improved performance, there is little evidence the housing market is picking up.  On the positive side, initial unemployment claims continue to move lower from a year ago."

According to Deloitte's analysis, recent developments that indicate consumer cash flow may be strained despite the recent steady increase in real consumer spending include:

• Real incomes fell 0.1 percent in February even as consumer spending rose, and are up just 0.3 percent from a year ago.  Quantitative easing is adding to the downward pressure on incomes as income from interest fell in February for the eighth consecutive month and is down 3.1 percent from a year ago, not adjusting for inflation.
• The savings rate has fallen from 4.7 percent to 3.7 percent over the past two months, adding roughly $110 billion to consumer spending.  Without that decline, instead of rising by 0.7 percent, spending would have fallen.  Real consumer spending is up 1.8 percent from a year ago.
• Gasoline prices continue to rise.  The average price of gasoline rose 4 cents last week to $3.97 a gallon up $0.68 since mid-December.

The Index, which comprises four components — tax burden, initial unemployment claims, real wages and real home prices — rose to 1.80 from an upwardly revised reading of 1.52 the previous month. 

"The warmer weather is helping consumers shake off the winter doldrums, but they remain vigilant about their pocketbooks, particularly in the face of rising gas prices this spring," said Alison Paul, vice chairman, Deloitte LLP and  retail & distribution sector leader.  "In our third annual spring survey of U.S. households, consumers told us they are feeling slightly better about the economy and their finances compared to a year ago.  While 67 percent indicate they plan to spend the same or more this year, nearly 80 percent say higher prices could cause them to change their spending in the months ahead.  We also found that consumers' use of mobile and online continues to grow across the board.  This suggests that digital channels should be one of retailers' strongest competitive plays to capture the consumer, particularly those shoppers keeping an eye on their household budgets."

Highlights of the Index include:

Tax Burden: The tax burden continues to rise slowly even as tax revenues collected by the Federal government stagnate.  Much of the increase is coming at the state and local level where tax increases have been needed to meet balanced budget requirements.  The tax rate is up 10.15 percent from a year ago.

Initial Unemployment Claims: Claims continue to move lower from a year ago, and were at 354,750 in the most recent month. Falling jobless claims are one of the bright lights in an otherwise darkening outlook for consumer finances.

Real Wages: With energy prices rising, real wages continue to fall, and are down 1.2 percent from a year ago.

Real Home Prices: Prices fell slightly in the most recent month, dropping 1.2 percent from a year ago, which is less than last month's decrease of more than 12 percent.  A slowdown in the pace of real home prices is a positive as it becomes less of a drag on the Index.