In May, the Deloitte Consumer Spending Index posted its first three-month increase since September 2010.

The index tracks consumer cash flow as an indicator of future consumer spending.

"The index's increase is due to an ongoing slowdown in declining new home prices, plus a small uptick in real wages as falling energy prices give consumers some relief," says Carl Steidtmann, Deloitte LLP's chief economist and author of the monthly index. "If these two components continue in this direction, consumer spending and sentiment may gain ground. However, the outcome of the stalling job market and economic crises overseas will determine whether it can be sustained."

Deloitte's analysis of factors influencing consumer spending indicate that housing prices currently are stable and in many markets are turning up. Should prices remain steady, demand might return. Pending sales of existing homes were down 5.1 percent in April from March, possibly because the unseasonably warm winter improved sales.

In recent weeks, oil prices fell more than $20 a barrel and gasoline prices are expected to follow, giving consumers more purchasing power. One concern is that falling energy prices also can reflect a weakening economy, like in the fall of 2008.

Three consecutive monthly employment reports were disappointing. Jobless claims are trending up and layoff announcements are up sharply as well. If the labor market continues to deteriorate, the recent improvement in the index will reverse quickly.

After posting significant gains early in the year, auto sales have weakened, even in comparison to a period when sales were depressed by a lack of supply from Japan. Sales in May fell sharply from April. At 13.78 million units on an annualized basis, sales in May were well below the peak sales rate of 15 million units achieved in February, and it is likely that the May numbers—due out in mid-June— also will be weak.

The Index, which takes into account tax burden, initial unemployment claims, real wages, and real home prices, rose to 2.96 from an upwardly revised reading of 2.42 the previous month.

"Though confidence is still fragile, the consumer's mood may improve as they begin to see their housing concerns recede, and gas prices fall," says Alison Paul, vice chairman of Deloitte LLP and retail & distribution sector leader. "Retailers need to capitalize on this timing and step up efforts to clear inventory before the back-to-school season starts. Smart retailers are using consumer insights and advanced analytics to sharpen price points and better predict buying behavior. By doing this, retailers are more likely to move over-inventoried goods while holding margins on the items that shoppers want."

Index highlights

Initial unemployment claims: The decline in claims has reversed, putting claims at 384,250. With no material increase in jobless claims and a pickup in announced layoffs, this indicator may move further into negative territory in the future.

Real wages: Energy prices have changed direction, giving a small boost to real wages, putting average hourly earnings at $8.72.

Real home prices: Prices have stabilized and are turning up, rising 2.54 percent from last year.